SUBJECT:

Specialty Hospital of
Southern California-La Mirada,

Petitioner,

Health Care Financing Administration

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

Specialty Hospital of Southern California-La Mirada (Petitioner or La Mirada) appealed the November 19, 1999 decision of Administrative Law Judge (ALJ) Steven T. Kessel dismissing this case on the ground that he did not have authority to hear and decide it. Specialty Hospital of Southern California-La Mirada, DAB CR630 (1999) (ALJ Decision). Petitioner had sought an ALJ hearing to review the November 20, 1998 determination of the Health Care Financing Administration (HCFA) to consolidate Covina Valley Community Hospital (Covina) with La Mirada as a single long-term care hospital effective August 27, 1998. Petitioner contended that it was entitled to an earlier effective date.

In his dismissal order, the ALJ concluded that the HCFA determination was not the kind of determination he had authority to hear and decide under section 1866(h)(1) of the Social Security Act (Act) or 42 C.F.R. § 498.3(b). The ALJ found that HCFA's determination involved how an existing hospital should be classified for purposes of Medicare reimbursement rather than whether it qualified as a hospital.

On appeal, Petitioner argued that the ALJ erroneously concluded that HCFA's determination was not a determination on which an ALJ hearing was available under either the Act or the HCFA regulations.

The Board's standard of review on a disputed issue of fact is whether the initial decision is supported by substantial evidence on the whole record. The standard of review on a disputed issue of law is whether the initial decision is erroneous. 42 C.F.R. § 1005.21(h). As discussed below, we conclude that the ALJ did not err in determining that the Act and regulations do not authorize an ALJ hearing on HCFA's determination regarding the effective date of the consolidation of the two entities in question.

Accordingly, we sustain the ALJ's dismissal of Petitioner's request for hearing.

Factual Background

Specialty Hospital of Southern California (Specialty Hospital) owns and operates hospitals in California. La Mirada, one of the hospitals owned by Specialty Hospital, was participating in Medicare as a hospital providing inpatient hospital services, and was receiving reimbursement as a long-term care hospital. On June 13, 1997, Specialty Hospital acquired Covina,⁽¹⁾ which at the time of acquisition was also participating in Medicare as a hospital providing inpatient hospital services, but was not receiving reimbursement as a long-term care hospital.⁽²⁾ The California Department of Health Services approved the change of ownership and issued a consolidated license to Covina and La Mirada on October 7, 1997. Specialty Hospital subsequently applied to HCFA to consolidate Covina with La Mirada as a single long-term care hospital.⁽³⁾ On February 12, 1998, HCFA notified Specialty Hospital that it was denying its request to add Covina to La Mirada's Medicare certification on the ground that the requirements for a provider-based designation in an August 1996 HCFA Program Memorandum were not met.⁽⁴⁾ Petitioner's Ex. 1. HCFA affirmed this determination on reconsideration by letter dated March 16, 1998. Petitioner's Ex. 3. Specialty Hospital requested an ALJ hearing on April 10, 1998 (Petitioner's Ex. 4), but continued to correspond with HCFA about the matter, and, in response to specific questions posed by HCFA, provided documentation that was received by HCFA on August 27, 1998 (Petitioner's Ex. 8).

On November 20, 1998, HCFA notified Specialty Hospital that it had approved its request to certify La Mirada and Covina as a single long-term care hospital.⁽⁵⁾ HCFA's letter also instructed Specialty Hospital that: (1) Covina's Medicare provider agreement "will be deemed to have been voluntarily terminated effective midnight August 26, 1998;" (2) Covina "must complete a close out cost report for its intermediary;" and (3) the number of certified beds for La Mirada will be increased by the number of beds at Covina. HCFA stated that "this change in the status" of Covina and the increase in beds for La Mirada were effective August 27, 1998, which HCFA identified as "the date we received

the additional information necessary to make this decision."⁽⁶⁾ On January 27, 1999, Specialty Hospital requested "clarification as to the legal and factual grounds for limiting the effective date," stating that its understanding was that the Department "had made certification decisions retroactive to the date that it was clear that the provider [met] the certification standards, which . . . would be the date that the State granted the consolidated license" (October 7, 1997). Petitioner's Ex. 10. Specialty Hospital also noted that HCFA had not responded to its earlier request for an ALJ hearing, and requested that HCFA advise it within 10 days "whether the Department will provide a hearing before an Administrative Law Judge." Specialty Hospital again wrote to HCFA on February 11, 1999, referring to a February 5, 1999 letter from HCFA (not in the record for this case) to the effect that "a separate request was needed to appeal the HCFA notice regarding the effective date of the consolidation, if such appeal rights exist." Specialty Hospital contended that it had made a timely request for an ALJ hearing and asked HCFA to forward its January 27, 1999 letter to the Departmental Appeals Board. HCFA forwarded that letter and related correspondence to the Board, stating that it reserved the right to raise jurisdictional and other objections to the hearing request, which was then docketed by the Civil Remedies Division as No. C-99-292.

Backgound on Prospective Payment System (PPS)

The ALJ found, and Petitioner did not dispute on appeal, that Specialty Hospital sought to have HCFA classify Covina as part of La Mirada so that Specialty Hospital could claim reimbursement for items or services provided at Covina under the reimbursement system that governed La Mirada, which was "potentially . . . more remunerative." ALJ Decision at 2. Prior to the consolidation, Covina was subject to the Prospective Payment System (PPS) at section 1886(d) of the Act, which provides for payment in accordance with prospectively determined rates. Long-term care hospitals such as La Mirada (defined as hospitals which have an average inpatient length of stay of greater than 25 days) are excluded from PPS. Section 1886(d)(1)(B)(iv); 42 C.F.R. § 412.23(e). Hospitals excluded from PPS are paid based on their reasonable costs on a retrospective basis, subject to a limit set by the Tax Equity and Fiscal Responsibility Act of 1982. Covina was entitled to the same PPS exclusion as La Mirada as of the effective date of the consolidation. See Petitioner's Ex. 5, at 1.

The ALJ Decision

The ALJ noted that HCFA moved to dismiss the request for hearing on two grounds: (1) that the ALJ lacked the authority to hear and decide the case, and (2) that Petitioner had not filed a timely hearing request. The ALJ concluded that the case should be dismissed on the former ground and stated that HCFA's motion to dismiss on the latter ground was therefore moot.

The ALJ began his analysis of his authority to hear and decide the case by stating that, with certain exceptions not relevant here, a facility is entitled to a hearing under section 1866(h)(1) of the Act and section 498.3(b) of 42 C.F.R. only on a determination that it is not a provider of services or a determination that it does not qualify as a provider, respectively. The ALJ concluded that, in establishing a consolidation date, HCFA never addressed the question whether either La Mirada or Covina was qualified as a provider. More particularly, the ALJ concluded that, instead of addressing the question of whether either facility met the requirements for participation in Medicare, as determined by the certification process--

HCFA's finding that the two facilities were consolidated effective August 27, 1998 relates to the manner in which the two facilities should be classified for reimbursement purposes. HCFA's action on La Mirada's consolidation request is thus a reimbursement classification and not a certification of provider status.

ALJ Decision at 4 (emphasis in original). The ALJ continued:

The issue that HCFA faced was not whether the Covina facility met certification requirements. Rather, the issue was whether the La Mirada facility and the Covina facility were operated in a way so as to meet reimbursement requirements which governed the operation of combined facilities. That issue had nothing to do with whether either facility independently, or both facilities in a combined capacity, met certification requirements.

Id. at 5.

The ALJ noted that his conclusion was in accord with the Board's decision in Metropolitan Methodist Hospital, DAB No. 1694 (1999), in which the Board upheld the dismissal, for lack of jurisdiction, of a request for a hearing on HCFA's determination denying the petitioner's request that HCFA exclude the petitioner's rehabilitation unit from PPS as of a certain date. The ALJ stated that he may have erred in finding that he had authority to hear another case, Johns Hopkins Health Systems, DAB CR598 (1999) (upheld on the merits by the Board in DAB No. 1712 (1999)), which involved the question of whether an outpatient facility should be considered part of a hospital.

Petitioner's Arguments

On appeal, Petitioner acknowledged that HCFA's determination regarding the effective date of consolidation gives rise "to a dispute about whether the Covina facility will be considered for periods prior to August 27, 1998 as a PPS facility or a PPS-exempt facility." Petitioner's response to Board questions, dated 4/20/00, at 2. However, Petitioner argued that HCFA's determination also "impacted . . . the proper billing provider, what entities would be considered accredited under La Mirada's accreditation, and whose deficiencies would be considered in determining whether La Mirada continued to comply with the Medicare Conditions of Participation." Id. at 5. Thus, Petitioner argued, "There is more than reimbursement at stake in this analysis." Id. at 6. According to Petitioner, these same issues were presented in Johns Hopkins, which Petitioner maintained was properly heard by the ALJ. Petitioner also argued that Metropolitan Methodist is not controlling because that case concerned solely whether a rehabilitation unit could be reclassified as PPS-exempt without affecting its existing status as part of a hospital, while this case concerned whether Covina could change its status from a separate provider to part of a hospital. Id.

In addition, Petitioner argued that "[s]ound policy also supports the need for jurisdiction" in cases such as this, since absent jurisdiction, a petitioner must proceed before the Provider Reimbursement Review Board (PRRB), "a process which takes more time (and thus more money)." Petitioner's Request for Review dated 1/28/00, at 3. Petitioner also noted that, if the PRRB were to find here, as it did in Johns Hopkins, that it did not have jurisdiction, Petitioner would be left without any means of redress from HCFA's determination regarding the effective date of the consolidation. Petitioner's response to Board questions, dated 4/20/00, at 6.⁽⁷⁾ Finally, Petitioner argued that HCFA should be estopped from arguing that the ALJ has no jurisdiction here when HCFA consented to his review of the same issue in Johns Hopkins. Otherwise, Petitioner argued, "HCFA controls which cases will be allowed to be decided by the administrative law judges." Petitioner's request for review, dated 1/28/00, at 3, n.3; see also, Petitioner's comment on HCFA's response to Board questions, dated 5/10/00, at 3-4.

Petitioner also argued that Shalala v. Illinois Council On Long Term Care, Inc., _ U.S. _, 120 S.Ct. 1084 (2000), articulated a different test from that applied by the ALJ for determining whether a provider such as Petitioner is entitled to a hearing under Part 498. Thus, Petitioner argued that the correct test was "whether a determination has been made by the Secretary that Petitioner is not in compliance with statutes, agreements or regulations, including those pertinent to the consolidation of Petitioner's two campuses." Petitioner's Reply dated 3/17/00, at 2-3.

Analysis

In this case, Petitioner seeks an ALJ hearing pursuant to 42 C.F.R. Part 498 on HCFA's determination of the effective date of the consolidation of Covina with La Mirada as a single long-term care hospital. The ALJ found, and Petitioner did not dispute, that the only possible statutory basis for affording a Part 498 hearing in this case is the provision in section 1866(h)(1) of the Act that "[a]n institution or agency dissatisfied with a determination by the Secretary that it is not a provider of services . . . shall be entitled to a hearing thereon by the Secretary." As noted by the ALJ, the regulations implementing this provision at 42 C.F.R. § 498.3(b) provide in relevant part for a hearing on "Whether a prospective provider qualifies as a provider."⁽⁸⁾

The Board considered the same statutory and regulatory provisions in evaluating whether the petitioner in Metropolitan Methodist was entitled to an ALJ hearing on HCFA's denial of the hospital's request to exclude its rehabilitation unit from PPS. The Board noted that the Act defined "provider of services" at section 1861(u) to include various types of entities including a hospital, and that the definitions in the Act of each of these types of entities, including the definition of "hospital" at section 1861(e), referred to the conditions of participation for that type of entity. The Board also noted that the definitions of these types of entities each referred to the definition of the types of Medicare-covered services provided by that entity, such as the definition in section 1861(b) of "inpatient hospital services." In addition, the Board noted that section 1866(e) states that, for purposes of section 1866, the term "provider of services" includes other entities that meet requirements specified in the Act and provide specified services.

Thus, the Board construed section 1866(h)(1) as providing for a hearing if the petitioner had sought "to establish that it met the conditions of participation to qualify as a 'hospital' to provide inpatient hospital services under Medicare." Metropolitan Methodist at 6.⁽⁹⁾ The Board found that substantial evidence in the record supported the ALJ's finding that the petitioner, including its rehabilitation unit, was already qualified as a "hospital" to provide inpatient hospital services when it sought the PPS exclusion. Accordingly, the Board found that the petitioner was seeking merely to establish that its rehabilitation unit met the conditions for reimbursement of those services using a different methodology, and concluded that nothing in section 1866(h)(1) provided hearing rights in that case.

The Board further noted in Metropolitan Methodist that the term "prospective provider" in section 498.3(b) of the regulations is defined in section 498.2 as "any of the listed entities [including a hospital] that seeks to participate in Medicare as a provider." (Elsewhere in that decision, the Board cited the definition of the term "provider" in section 498.2 to mean "a hospital [and other specified entities] that has in effect an agreement to participate in Medicare . . . ," as well as section 489.2, listing the types of providers subject to the rules governing Medicare provider agreements.) The Board found that the ALJ did not err when he determined that neither the petitioner nor its rehabilitation unit "could be characterized as a prospective provider within the plain meaning of the regulations because neither . . . was trying to attain provider status" when the petitioner requested the PPS exclusion. Metropolitan Methodist at 7.

Applying the same analysis here, we conclude that the ALJ did not err in determining that Petitioner had no right to an ALJ hearing. The ALJ found, and Petitioner did not dispute, that both Covina and La Mirada "were certified as providers by HCFA" prior to the date that Specialty Hospital sought to have Covina consolidated with La Mirada. ALJ Decision at 4. The change in provider number for Covina did not affect the status of either entity as a hospital or the type of services that either entity provided, or require that HCFA evaluate whether either entity continued to meet the conditions of participation for a hospital. Rather, the change reflected what reimbursement methodology would apply, that is, whether the PPS system would continue to apply to Covina or whether Covina would be excluded from PPS under the exclusion for long-term care hospitals. The concept of a "long-term care hospital" is used to identify a hospital that meets certain conditions for exclusion from the reimbursement system established by section 1886 of the Act, not to define the services that will be reimbursed or the type of entity that is qualified to provide those services.

Accordingly, the ALJ properly concluded that neither section 1866(h)(1) of the Act nor section 498.3(b) of 42 C.F.R. provided a basis for him to hear and decide the case.

As noted above, Petitioner argued that this case is distinguishable from Metropolitan Methodist because it involves a change in Covina's status from a separate provider to a part of another provider. Although the facts of the two cases differ, the effect of the change sought by the petitioner in each case was the same. In Metropolitan Methodist, the exclusion of the petitioner's rehabilitation unit from PPS affected how inpatient hospital services provided by the rehabilitation unit would be reimbursed. Similarly, the consolidation of Covina with La Mirada affected how inpatient hospital services provided by Covina would be reimbursed.

Petitioner nevertheless argued that the effect of the consolidation went beyond the mechanism for reimbursement of services provided by Covina and "impacted . . . the proper billing provider, what entities would be considered accredited under La Mirada's accreditation, and whose deficiencies would be considered in determining whether La Mirada continued to comply with the Medicare Conditions of Participation." Petitioner's response to Board questions, dated 4/20/00, at 5. Petitioner did not explain how the identity of the billing provider or the manner in which the facilities were accredited were matters for which an ALJ hearing should be provided under the statute or regulations. Moreover, Petitioner's suggestion that certification issues may arise in the future as a result of the consolidation does not advance its case since the HCFA determination on which Petitioner seeks an ALJ hearing here does not itself involve any such issues.

Contrary to what Petitioner argued, moreover, this case is distinguishable from Johns Hopkins.⁽¹⁰⁾ That case involved a HCFA determination that an outpatient facility was not properly considered hospital-based. Unless it could be considered hospital-based, the services provided by the outpatient facility could not be reimbursed as outpatient hospital services. In contrast, the services provided by Covina were eligible for reimbursement as inpatient hospital services both before and after its consolidation with La Mirada. Moreover, the HCFA determination in Johns Hopkins would be expressly covered by new regulations effective October 1, 2000, which include as an "initial determination" appealable under 42 C.F.R. § 498.3 a determination about whether a facility is a provider-based entity. 65 Fed. Reg. 18434, 18549 (April 7, 2000). These regulations would not provide a basis for a hearing on the facts of the instant case, however, since new section 413.65 defines a "provider-based entity" as "a provider of health care services . . . that is either created by, or acquired by, a main provider for the purpose of furnishing health care services of a different type from those of the main provider under the name, ownership, and administrative and financial control of the main provider . . . ." Id. at 18538 (emphasis added). Covina and La Mirada provided the same type of services--inpatient hospital services.⁽¹¹⁾ In view of the distinction between the two cases, we find without merit Petitioner's contention that HCFA acted arbitrarily in initially consenting to an ALJ hearing in Johns Hopkins and in moving to dismiss for lack of jurisdiction here.

We are also not persuaded by Petitioner's arguments that it should be afforded an ALJ hearing because the case could be heard faster than if Petitioner proceeded before the PRRB and because there would be no other forum for an administrative appeal if the PRRB were to find that it lacked jurisdiction. The authority to provide an ALJ hearing using the procedures in Part 498 is derived from statutory and regulatory provisions. If these provisions are not applicable, then there is no right to a hearing under those procedures. While the unavailability of PRRB review might arguably provide a reason why we should construe an ambiguous provision in favor of review pursuant to Part 498, it is not a sufficient basis for jurisdiction by itself. Moreover, unlike in Johns Hopkins, where the PRRB had rejected the petitioner's appeal before the petitioner requested an ALJ hearing, here it is not clear that the PRRB will not ultimately hear the issue.⁽¹²⁾

The Secretary states in her brief that the relevant 'determination' that entitles a 'dissatisfied' [nursing] home to review is any determination that a provider has failed to comply substantially with the statute, agreements, or regulations, whether termination or 'some other remedy is imposed.' (Citation omitted.) The Secretary's regulations make clear that she so interprets the statute. See 42 CFR §§ 498.3(b)(12), 498.1(a)-(b)(1998). The statute's language, though not free of ambiguity, bears that interpretation.

Petitioner's Br. dated 3/17/00, at 2, quoting Illinois Council at 1097 (emphasis added by Petitioner). Read in context, the quoted language reflects the Court's agreement that the cited provisions entitle a provider not only to a hearing on a termination for failure to substantially comply with the applicable requirements, but also to a hearing on lesser sanctions than termination, such as the transfer of patients, the withholding of payments, or a civil money penalty, which are imposed on the same basis. Nothing in the decision indicates that any additional hearing rights are encompassed by the cited provisions.

Conclusion

For the reasons stated above, we uphold the ALJ Decision dismissing Petitioner's request for hearing.

Donald F. Garrett

M. Terry Johnson

Judith A. Ballard
Presiding Board Member

1. The ALJ Decision refers to this facility--which was renamed Specialty Hospital of South California-San Gabriel Valley Campus at the time of its acquisition by Specialty Hospital--by its former name.

2. The ALJ Decision refers to La Mirada as a "long-term acute care hospital" and to Covina as an "acute care hospital." ALJ Decision at 2. The term "acute care" is sometimes used to describe the level of services provided by a hospital, but is not relevant to our discussion here.

3. This document is not in the record, so we do not know precisely how the request was framed.

4. Petitioner took the position that Section 2024 of HCFA's State Operations Manual, captioned "Certification of Hospitals with Multiple Components as a Single Hospital," was applicable instead. See,e.g., Petitioner's Motion for Summary Judgment and Memorandum in Support Thereof, dated 10/19/99, at 11-15.

5. Although HCFA's letter indicated that it was certifying La Mirada and Covina as a single long-term care hospital, it is clear in context that HCFA's action was not part of the formal survey and certification process through which the state survey agency recommends to HCFA whether an entity is eligible to participate in Medicare (at 42 C.F.R. Part 488).

6. HCFA sent Petitioner two letters to this effect dated November 20, 1998. One was submitted as Petitioner's Exhibit 9 and one was submitted as an attachment to Petitioner's February 11, 1999 letter. The more detailed instructions noted in the text above are in the latter submission.

7. Petitioner also noted that no "intermediary determination" has been issued, which is a prerequisite for PRRB review under 42 C.F.R. § 405.1835(a).

8. Section 1866(h)(1) also provides for review of the Secretary's refusal to enter into or renew a provider agreement or her decision to terminate a provider agreement based on the determinations listed in section 1866(b)(2). Section 1866(h)(1) is part of the statutory basis for the regulations at Part 498, but Part 498 also implements other provisions of the Act. See section 498.1(b)-(d), (h)-(k). In addition, Part 498 provides for a non-statutory review of certain determinations that affect suppliers and practitioners. See section 498.1(g).

9. In referring to the "conditions of participation" for hospitals, we did not mean to imply that the determination of whether an entity qualifies as a provider within the meaning of the Act and regulations is limited to a determination of whether it meets the quality of care or health and safety requirements. 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. See section 1864(a) of the Act.

10. Petitioner stated that "[a]dditional comparisons to Johns Hopkins may be possible if Petitioner had access to the entire record in that case." Petitioner's response to Board questions, dated 4/20/00, at 6, n.2. We note that Petitioner never requested access to that record; if it had, the record would have been made available.

11. Although HCFA initially sought to justify its determination of the effective date of the consolidation in the instant case based on its practice with respect to determinations of provider-based status (see Petitioner Exhibit 6), HCFA stated in briefing in this appeal that this case was only "analogous" to the provider-based situation in that respect and that HCFA did not intend to suggest that the same hearing rights were available. HCFA response to Board questions, dated 4/24/00, at 2. Moreover, HCFA's briefing cited section 412.22(d) of the PPS regulations as the applicable provision for determining the effective date of the consolidation. HCFA's Response to Petitioner's Request for Review, dated 3/1/00, at 6. Although HCFA did not assert that it had relied on this provision to determine the effective date of the consolidation, HCFA's citation indicates that HCFA viewed that determination as involving how a facility should be classified for purposes of Medicare reimbursement.

12. We see no reason, however, why the fact that Petitioner is not entitled to a hearing under either section 1866(h)(1) or section 498.3(b) would preclude the ALJ from providing a hearing if the Secretary, or HCFA, acting pursuant to a delegation of Secretarial authority, consented to such review. The court cases HCFA cited on consent to jurisdiction are inapplicable in the administrative context.