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CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES
Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
Civil Remedies CR598
IN THE CASE OF  
Johns Hopkins Health Systems DATE: December 22, 1999
- v. - Decision No. 1712
Health Care Financing Administration. App. Div. Docket No. A-99-99
DECISION
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FINAL DECISION ON REVIEW OFADMINISTRATIVE LAW JUDGE DECISION

The Health Care Financing Administration (HCFA) appealed a decision by Administrative Law Judge Steven T. Kessel in which he concluded that the Green Spring Oncology Center (Oncology Center) qualified for provider-based status as part of Johns Hopkins Hospital (the Hospital), effective October 10, 1998. Johns Hopkins Health Systems, CR598 (1999)(ALJ Decision).

HCFA contended that the ALJ Decision erroneously concluded that the Oncology Center satisfied all of HCFA's criteria governing whether an entity will be considered part of a Medicare provider, such as a hospital, for Medicare reimbursement purposes. Specifically, HCFA contended that the Center failed to meet two of the eight criteria set out in HCFA's program memorandum (PM) A-96-7: criterion 2 (referred to by HCFA as the "licensing criterion") and criterion 7 (referred to by HCFA as the "held out to the public" criterion).1

Johns Hopkins Health Systems (JHHS) responded with a very detailed analysis, arguing among other things that the ALJ did not err in concluding that the criteria at issue were met and that, in any event, HCFA's own policy does not require that all of the criteria for provider-based status be met by every entity. HCFA chose not to reply. Subsequently, JHHS submitted a copy of an amendment to HCFA's State Operations Manual, and HCFA asked for and received an opportunity to comment on this submission.

For the reasons stated below, we affirm the ALJ Decision.

ISSUES
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Discussion

The standard for our review on a disputed issue of fact is whether the ALJ decision is supported by substantial evidence in the whole record. The standard of review on a disputed issue of law is whether the ALJ decision is erroneous.

Below, we first address the threshold issue of whether all of HCFA's criteria must be met for an entity to be designated as a provider-based entity, rather than a freestanding entity. We then address each of the two criteria HCFA contended were not met. Since the facts in this case are not in dispute, we include them below only as relevant for our discussion. For a complete review of the facts and an analysis of the six criteria not at issue, see the ALJ Decision at pages 5-8, 10-12, and 14-16. It is, for example, undisputed that the Oncology Center is included under the Joint Commission of Accreditation of Health Care Organizations (JCAHO) accreditation of the Hospital and is recognized by JCAHO to be part of the hospital; the Oncology Center has operated as an outpatient department of the Hospital since it was opened; the medical director of the Oncology Center reports directly to the Hospital's Director of Oncology; the Hospital has final control over all of the administrative decisions of the Oncology Center; and the Oncology Center and the Hospital are fully integrated financially.

FINDINGS OF FACT AND CONCLUSIONS OF LAW
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Whether HCFA policy requires that all of the criteria be met

Implicit in HCFA's arguments here is the assumption that each and every one of the criteria must be fully met for an entity to attain provider-based status.

In 1998, HCFA issued a notice of proposed rulemaking (NPRM) that proposed a new policy for determining whether an entity is a department of a provider, a provider-based entity, or a freestanding entity. This NPRM specifically states, however, that the new policy will not be effective until 30 days after a final rule is published. 63 Fed. Reg. 47,552; 47,588-89.2 Thus, the relevant HCFA policy for purposes of our analysis is the existing policy, not the proposed policy.

HCFA presented no explanation for its position implying that, under its existing policy, all of the criteria must be met. Apparently, HCFA relied on the statement, preceding the list of criteria in PM A-96-7, that "the following applicable requirements must be met before an entity can be designated as part of a provider for payment purposes: . . ." HCFA's position failed to recognize, however, that PM A-96-7, issued to Medicare fiscal intermediaries, also states:

The purpose of this program memorandum is to consolidate and clarify [HCFA's] policy regarding provider-based and free-standing designation decisions. The various elements of this policy have been issued previously in regulations, program manuals, and letters to HCFA regional offices (ROs) or providers.

Attachment (Att.) A. As Petitioner exhaustively pointed out, previous policy issuances (still in effect), as well as past HCFA practice, indicate that no one criterion is determinative of provider-based status.3 In particular, Regional Office Manual section 6855 states with respect to determinations about health centers or clinics that "licensure is, of course, good evidence of provider status, but is not essential to such determination." Att. H. Section 6860 of that Manual indicates that the factors listed there all relate to "common ownership and operational integration." Att. E.

HCFA did not specifically deny that reading PM A-96-7 to require that each and every one of the criteria be fully met is inconsistent with its policy as stated elsewhere, as well as past practice. Indeed, in commenting on the new introductory language to section 2004 of the State Operations Manual (Transmittal 11) submitted by Petitioner on appeal, HCFA acknowledged that the section "allows for flexibility in the application of criteria" according to the type of entity. HCFA Response dated 11/24/99.4

Moreover, reading the criteria in PM A-96-7 as requirements imposed on entities (all of which must be met by every type of entity) is not the best reading of the criteria in light of their context, purpose, and manner of promulgation. Rather, the criteria are best viewed as evidentiary factors to be considered as a whole in making a determination about whether common ownership and operational integration in fact exist.

We recognize that HCFA has some legitimate concerns about cost-shifting, increased beneficiary copayments, and beneficiary safety that have led it to propose a change in its policy and to propose to codify its policy in regulations applicable to all entities. HCFA cannot reasonably, however, propose publicly to make this change apply only prospectively after publication of a final rule and then nonetheless apply that change before the final rule is published.

Thus, even if we agreed with HCFA that the ALJ erred in concluding that Criteria 2 and 7 were met, we would further conclude that the error was harmless. The evidence supporting the unchallenged findings that the other criteria were met provides sufficient support for the ALJ's ultimate conclusion that the Oncology Center qualifies as a provider-based entity under the existing policy.5 The unrebutted evidence establishes that the Oncology Center and Hospital are under common ownership and are operationally integrated entities.

Even if we agreed with HCFA that all of the criteria must be met, we would affirm the ALJ Decision, however. As we discuss next, HCFA's reasons for challenging the ALJ's findings on Criteria 2 and 7 are not persuasive.

Whether the ALJ erred in finding that Criterion 2 was met

Criterion 2 in PM A-96-7 states:

The entity is an integral and subordinate part of the provider where it is based, and, as such, is operated with other departments of that provider under common licensure (except in situations where the State separately licenses the provider-based entity).

HCFA argued before the ALJ that the Hospital and Oncology Center were not operated under common licensure because the Hospital's license does not specifically refer to the Oncology Center, nor does it specifically authorize the Hospital to operate the Oncology Center. The ALJ rejected this argument because HCFA had failed to consider that, "under Maryland law, the Hospital is permitted to operate the Oncology Center without a specific authorization to do so in the Hospital's State license." ALJ Decision at 9. The ALJ relied on a Maryland Attorney General's decision in interpreting Maryland law. The ALJ concluded that "rather than being an 'unlicensed facility,' the Oncology Center is a facility that is assumed under Maryland law to be a part of the Hospital." ALJ Decision at 9. The ALJ further concluded that HCFA's asserted interpretation of the program memorandum is inconsistent with Medicare's principle of deference to the decisions of State and local governments on issues of licensure.

HCFA challenged this conclusion, based on the Medicare statute's definition of "hospital," on Maryland licensure law, specifically the definition of "license," and on Maryland administrative code provisions.

Section 1861 of the Social Security Act (Act) defines a "hospital" for purposes of Medicare, listing various conditions of participation, including that the institution is "primarily engaged" in providing services to inpatients and that--

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

' 1861(e)(7) of the Act; 42 U.S.C. ' 1395x(e)(7).

Maryland law defines "license" to mean a license to operate a hospital, a residential treatment center, or a related institution in the state. Md. Code Ann., Health-Gen. ' 19-301(1995). The term "hospital" is defined in Maryland law as an institution that-

(1) Has a group of at least 5 physicians who are organized as a medical staff for the institution;

(2) Maintains facilities to provide, under the supervision of the medical staff, diagnostic and treatment services for 2 or more unrelated individuals;

and

(3) Admits or retains the individuals for overnight care.

' 19-301(f)(1998 Supp.); Att. C. Maryland's administrative code states:

A. Separate licenses are required for institutions maintained on separate premises, even though both institutions are operated under the same management.

B. Separate licenses are not required for separate buildings on the same grounds.

MD ADC 10.07.01.06 (1998); HCFA Ex. 20.

HCFA argued that the "fact that the Oncology Center is not licensed therefore leads inescapably to the conclusion that the Center is assumed under Maryland law not to be part of the hospital." HCFA App. Br. At 13. Moreover, HCFA argued, "because it is not licensed, the Center fails to meet the Medicare statute's definition of a'hospital.'" Id. HCFA also argued that because the Oncology Center and the Hospital are 11 miles apart and not on the same grounds, Maryland law flatly precludes the possibility that that the Hospital's license could cover the Oncology Center.

These arguments are not persuasive. Criterion 2 focuses on whether an entity is "an integral and subordinate part of the provider where it is based, and, as such, is operated under common licensure . . . ." The Maryland Administrative Code requires separate licensure for "institutions" maintained on separate premises, but does not directly preclude a hospital from operating an integral and subordinate outpatient center on separate premises without obtaining a separate license. The Maryland Attorney General's opinion, relied on by the ALJ to support a conclusion that the Hospital's operation of the Oncology Center is consistent with Maryland law, states:

[T]he State's hospital statutes and regulations do not encompass or cover licensure of [off-campus outpatient facilities that are operated by a hospital] as part of a the hospital's license. Furthermore, there are no other laws or regulations which would cover or require licensure of these types of facilities unless the facility would qualify as a freestanding ambulatory care facility . . . .

P.Ex. 8, at 1.6

The ALJ reasonably concluded that, under Maryland law, an entity may be an integral and subordinate part of a hospital, operated without a separate license, and therefore considered to be under Acommon licensure@ with the hospital, even if the hospital's license does not specifically "cover" the entity or specifically authorize the hospital to operate the entity.

Contrary to what HCFA argued, this reading is not inconsistent with the statutory definition of "hospital" for Medicare purposes, nor does the Oncology Center need to meet that definition as an independent entity. As the ALJ pointed out, the Medicare definition requires licensure only where State or local licensure law is "applicable," and Maryland licensure law does not apply to off-campus hospital outpatient centers. HCFA pointed to nothing in the Medicare law or regulations that specifically precludes the Oncology Center from being considered part of the hospital for Medicare purposes under this circumstance.

HCFA indicated a concern that the fact that the Hospital's license does not cover the Oncology Center raises quality of care issues. This ignores the Medicare law providing that a hospital that meets certain accreditation standards is deemed to meet certain parts of the Medicare definition of "hospital" (including the licensure requirement). '' 1865 and 1861(e)(7) of the Act. A key finding supporting the ALJ's conclusion here was that the Oncology Center was included in the JCAHO accreditation of the Hospital. HCFA did not dispute this finding.

Underlying HCFA's position here is a reliance on the fact that the Oncology Center is not on the same grounds as the Hospital. HCFA may have some legitimate concerns about how locating a facility at too great a distance from the Hospital grounds may affect whether its services can truly be considered outpatient services. The difficulty is that, in establishing criteria for provider-based status, HCFA policy merely refers to "close proximity." The ALJ found that this criterion was met, pointing out that, had HCFA intended that an entity be "adjacent to" to the main provider, the policy would have said this. HCFA did not challenge the ALJ's finding that the Oncology Center and the Hospital met the "close proximity" criterion.

Thus, we affirm the ALJ's finding that Criterion 2 was met.

Whether the ALJ erred in finding that Criterion 7 was met

Criterion 7 in PM A-96-7 states:

The entity is held out to the public as part of the provider where it is based (e.g., patients know they are entering the provider and will be billed accordingly).

Before the ALJ, HCFA argued that the Oncology Center was precluded from holding itself out as part of the Hospital because the Maryland rate-setting body for health care facilities, the Health Services Cost Review Commission (HSCRC), does not regulate the Center's reimbursement rates. In determining that this criteria was not met, HCFA also relied on the fact that the Oncology Center's invoices refer only to "Johns Hopkins" and not to "Johns Hopkins Hospital."

The ALJ concluded that the HSCRC regulates only the types of services reimbursed under Part A of Medicare and that the Oncology Center provides services under Part B. The ALJ further concluded that only certain on-campus facilities are precluded by the HSCRC from being a part of a hospital if their rates are not regulated, so that the failure of the HSCRC to regulate the Oncology Center's rates did not have the effect HCFA said it did. The ALJ rejected HCFA's reliance on the Oncology Center's invoices as indicating that it did not hold itself out as part of the Hospital, finding that a reasonable patient could infer from the reference on the invoice to "Johns Hopkins" that the Oncology Center was part of the Hospital. The ALJ also pointed to other evidence in the record as support for his finding that the Oncology Center holds itself out as part of the Hospital.

On appeal, HCFA argued that the ALJ erred as a matter of law in concluding that the failure of the Maryland HSCRC to regulate the Oncology Center's reimbursement rates does not mean that the Oncology Center is precluded from holding itself out as part of the Hospital. HCFA pointed to the definition of "hospital services" in Maryland law as indicating that the HSCRC jurisdiction is broader than Medicare Part A services and as supporting HCFA's position. HCFA also challenged the ALJ's reliance on other evidence as showing that the Oncology Center holds itself out as part of the Hospital. In this section, we first discuss HCFA's argument about the HSCRC and then HCFA's argument about the evidence on which the ALJ relied in determining that this criterion is met.

The effect of the HSCRC's failure to regulate the Oncology Center's rates

In asserting that the ALJ erred, HCFA argued:

Neither state nor federal law limits the authority of the HSCRC to set rates only for reimbursement claimed under Medicare Part A. On the contrary, the HCSCRC's jurisdiction extends to "hospital services offered by or through all facilities." Md. Health-Gen. Code Ann. ' 19-209(a). Maryland law defines "hospital services" to include "outpatient services provided at the hospital." ' 19-201(d)(iii)(emphasis added). Therefore, if it deemed the services being provided at the Center to be hospital outpatient services, the HSCRC would have regulated the rates of those services. Indeed, the HSCRC does regulate the charges, as outpatient hospital services, of the clinics located . . . on the Johns Hopkins campus. (P.Ex.3). The inescapable conclusion is that the HSCRC does not deem the Center's services to be outpatient hospital services. The HSCRC's failure to regulate the Oncology Center can only mean that the HSCRC has concluded that the Oncology Center is not part of the Hospital. . . . And, . . . it follows that the Center cannot be held out to the public as part of the Hospital.

HCFA App. Br. at 19-20 (emphasis in original).

HCFA's reasoning is flawed, however. First, the federal statutory provision permitting Medicare to pay rates set by the HSCRC refers to services for which payment may be made "under this part." ' 1814(b) of the Act. In context, this means Part A services. Thus, the ALJ reasonably concluded, with respect to Medicare rates, that the HSCRC's rate-setting authority does not extend to Medicare Part B outpatient services. HCFA did not cite to any federal authority that would support a different conclusion.

Second, HCFA did not point to any authoritative interpretation of Maryland law stating that the Oncology Center is precluded from holding itself out as part of the Hospital, but would have us draw this inference from Maryland law provisions. HCFA did not establish that this is a reasonable inference, however. HCFA's logic depends on whether Maryland law treats the concepts of "hospital" and "facility" the same as Medicare law. Yet, the Maryland code does not use the same definition of the term "hospital" as the Medicare statute. Instead, the Maryland definition appears to be more narrow than the federal definition as an institution "primarily engaged" in providing inpatient services. See Att. C, quoted above. Moreover, JHHS provided support for its view that the phrase "outpatient hospital services provided at the hospital" in ' 19-201(d)(iii) of the Maryland Code relates solely to the location of the services and was not intended as defining what entity could be considered part of a hospital for purposes of providing outpatient hospital services in Maryland. P. App. Br. at 30-32.

Similarly, HCFA's reliance on the Maryland code references to HSCRC rate-setting for all "facilities" erroneously assumes that the term would encompass all entities that would be considered a hospital facility for federal purposes. Yet, the term "facility" is narrowly defined in Maryland law for rate-setting purposes as a "hospital" or a Arelated institution.@ A Arelated institution@ is an Ainstitution that is licensed by the Department as: (i) A comprehensive care facility that is currently regulated by the Commission; or (ii) An intermediate care facility -- mental retardation.@ Md. Code Ann., Health-Gen. ' 19-201(e). In contrast, HCFA's policy on provider-based status recognizes that some entities might be hospital facilities that would not require separate licensure.

Under HCFA's policy, the key issue is whether an entity is under common ownership and integrated operationally with a hospital. An entity could meet this test without necessarily being either part of a "hospital" or a Afacility,@ as those terms are defined for rate-setting purposes under Maryland law.

Thus, HCFA's argument on HSCRC rate-setting is not persuasive.

The evidence on whether Criterion 7 is met

As noted above, the ALJ's finding that the Oncology Center is held out to the public as part of the Hospital was based on the record in the evidence as a whole. HCFA argued that the Oncology Center must make an affirmative showing that it holds itself out as part of the Hospital and that the ALJ's finding that a reasonable person could infer from the reference to AJohns Hopkins@ on the Oncology Center's billing documents that the Center is part of the Johns Hopkins Hospital showed that he did not apply the right standard. HCFA also attacked the other evidence on which the ALJ relied.

First, we note that the ALJ's statement regarding the inference that a patient might draw from the reference to AJohns Hopkins@ was in the context of rejecting HCFA's argument that the lack of the word "hospital" showed that the Oncology Center did not hold itself out as part of the Hospital. We agree with the ALJ that HCFA's reliance on the mere absence of the word "hospital" is misplaced. We recognize that in today's healthcare environment there is some ambiguity -- Johns Hopkins now refers not only to Johns Hopkins Hospital, but also to Johns Hopkins Health Systems. Yet, HCFA's assertion that the mere absence of the word "hospital" means that the Oncology Center does not hold itself out as part of the Hospital ignores the longstanding association of the name AJohns Hopkins@ with the Hospital.

Substantial evidence in the whole record supports the ALJ's finding that the Oncology Center does hold itself out as part of the Hospital. See ALJ Decision at 13. HCFA did not dispute the facts found by the ALJ, but asserted for some individual facts that they do not "demonstrate" that the criterion is met. For example, HCFA argued that "the fact that patients of the Center are registered as patients of the Hospital and are given a Hospital identification number [does not] demonstrate that the Center is held out as part of the Hospital" since patients "may be treated at the Hospital one day, and the Center on another day" so this fact "merely demonstrates that the patient has access to the Hospital when he or she requires or wants to receive treatment at the Hospital rather than at the Center." HCFA App. Br. at 25-26. The flaw in this argument is that it treats the on-campus location as "the Hospital," whereas the evidence refers to the "medical campus" as the alternative to Green Spring Oncology Center -- that is, merely as an alternative location, rather than an alternative institution providing a different type of service. HCFA's analysis, moreover, fails to consider the evidence as a whole and, therefore, fails to persuade us that the ALJ erred in concluding that this criterion was met.

ANALYSIS
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CONCLUSION
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For the reasons stated above, we affirm the ALJ Decision.

JUDGE
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Donald F. Garrett
M. Terry Johnson
Judith A. Ballard
Presiding Board Member

FOOTNOTES
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1 As the ALJ noted, PM A-96-7 expired July 1, 1997. HCFA subsequently extended the policy through issuances PM A-98-15 (May 1998) and HCFA Pub. 60A (May 1, 1999).

2 The NPRM also proposes to make a determination about an entity's status an appealable Ainitial determination@ under 42 C.F.R. Part 498. The current list of initial determinations includes whether an end stage renal disease treatment facility is considered to be hospital-based for purposes of rate-setting and reimbursement, but does not specifically refer to a determination about whether an entity is hospital-based for purposes of providing and being reimbursed for outpatient hospital services. Here, HCFA initially agreed that the ALJ could hear and decide JHHS' request for hearing under Part 498, but later seemed to assert that he lacked that authority. The ALJ concluded that he had the authority, on the basis that the determination at issue is "in effect, a determination that the Oncology Center does not qualify as a provider (a hospital)." HCFA did not challenge that conclusion on appeal. We note that, after the ALJ Decision was issued, the Board issued Metropolitan Methodist Hospital, DAB 1694 (1999), which raised a similar, but distinguishable jurisdictional issue. In Metropolitan Methodist, the Board concluded that a determination about whether a rehabilitation unit of a hospital could be excluded from the prospective payment system for inpatient hospital services was not an appealable determination. HCFA had challenged jurisdiction there, and it was undisputed that the rehabilitation unit was part of the hospital, providing services that qualified as inpatient hospital services under Medicare.

3 We note that there is a possible exception to this for entities subject to regulatory standards for provider-based status, such as end stage renal disease facilities under 42 C.F.R. ' 413.174.

4 HCFA further acknowledged that its determination regarding the applicability of criteria to particular types of entities is subject to review, but argued that the question on review is "whether HCFA's determination was reasonable, not whether the provider's own list of applicable criteria is reasonable." Id. While we agree that the provider's view of what is applicable does not control, HCFA is clearly mistaken in how it frames the question for review. The Part 498 process which HCFA conceded applies provides for de novo review, rather than for a review of the reasonableness of HCFA's determination based on the evidence before it.

5 In light of this conclusion, we do not reach Petitioner's argument that HCFA violated the Administrative Procedure Act by promulgating its policy without using notice and comment rulemaking.

6 HCFA did not argue that the Oncology Center would qualify as a freestanding ambulatory care facility under

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