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Kearney Regional Medical Center, LLC v. United States Department of Health and Human Services

United States Court of Appeals, Eighth Circuit

August 19, 2019

Kearney Regional Medical Center, LLC, Plaintiff- Appellant,
v.
United States Department of Health and Human Services; Alex M. Azar, II, in his official capacity as Secretary of the United States Department of Health and Human Services, [1] Defendants - Appellees.

          Submitted: May 15, 2018

          Appeal from United States District Court for the District of Nebraska - Lincoln

          Before SMITH, Chief Judge, BEAM and COLLOTON, Circuit Judges.

          COLLOTON, CIRCUIT JUDGE.

         Kearney Regional Medical Center, LLC, sought judicial review of a decision by the Departmental Appeals Board of the United States Department of Health and Human Services to deny Kearney Regional's application to participate in the Medicare program. The facility later received approval, but the initial ruling prevented Kearney Regional from participating in Medicare and receiving reimbursements for eighty-seven days during 2014. The district court granted summary judgment in favor of the Department, and Kearney Regional appeals. We conclude that the Board failed adequately to explain the legal standard that it applied in resolving Kearney Regional's administrative appeal, and we therefore reverse and remand with directions to return the case to the agency.

         I.

         Kearney Regional is a recently constructed, physician-owned hospital facility that serves patients living in rural Nebraska and Kansas. Construction was completed in 2013, and the facility received its license to operate from the State of Nebraska on December 9, 2013. From December 9 to December 30, Kearney Regional admitted and provided care to twenty-one inpatients. The facility could not bill Medicare for services provided during this period, however, because it had not yet acquired the necessary approval from the United States Department of Health and Human Services.

         To receive payments for providing Medicare-covered services, a facility like Kearney Regional must first enter into an agreement with the Secretary of the Department of Health and Human Services. 42 U.S.C. § 1395cc(a)(1). The Secretary, in turn, may refuse to enter an agreement with a provider that fails substantially to meet a host of statutory and regulatory requirements. See id. § 1395cc(b)(2); 42 C.F.R. §§ 482.1-482.104. To evaluate a provider's compliance with those requirements, the Secretary may rely on accreditation by an approved state or private accrediting body, such as the American Osteopathic Association. 42 U.S.C. §§ 1395aa, 1395bb(a)(1). By regulation, an accrediting body may conduct a survey of the applying provider and may recommend that the Department deem the provider to be in compliance with the relevant statutory and regulatory requirements. 42 C.F.R. § 488.4(a). The Department, through the Centers for Medicare & Medicaid Services, then determines for itself whether the provider has met all the applicable requirements "on the basis of its own investigation of the accreditation survey or any other information related to the survey." Id. § 488.7(a).

         A provider seeking to participate in Medicare must meet the applicable statutory definition for that category of provider. See 42 U.S.C. § 1395cc(b)(2)(B); 42 C.F.R. § 488.3(a)(1). Kearney Regional sought approval to participate as a "hospital." The Medicare Act defines a "hospital" as an institution that, among other things, "is primarily engaged in providing" certain services "to inpatients." 42 U.S.C. § 1395x(e)(1).

         Kearney Regional filed an application on December 18, 2013, for a branch of the American Osteopathic Association to assist with its Medicare certification. The Association conducted an accreditation survey at the facility from January 13-15, 2014. Kearney Regional discontinued serving inpatients on December 30, and had no inpatients when the Association visited in January. But the lead surveyor said that was not a problem because the survey could rely on records and interviews of patients who were previously admitted.

         On Friday, February 7, the Association granted accreditation and recommended that the Department deem Kearney Regional qualified to participate in Medicare. Kearney Regional resumed admitting inpatients the following Monday, February 10.

         On April 9, however, the Centers for Medicare & Medicaid Services (CMS) determined that Kearney Regional did not qualify for participation in the Medicare program. CMS concluded that Kearney Regional did not meet the definition of a "hospital" under the relevant statute. The decision letter explained that because there were no inpatients at the time of the survey in January, and the last inpatient discharge prior to the survey occurred on December 30, Kearney Regional was not "primarily engaged in" providing care to inpatients. See id.

         Kearney Regional requested reconsideration, and CMS affirmed its decision. The decision letter cited the fact that Kearney Regional "was not providing services to any inpatients at the time it was surveyed . . . and indeed had not provided any services to inpatients for a period of time prior to that survey."

         The facility requested a hearing before an administrative law judge, and the ALJ affirmed CMS's reconsidered determination. The ALJ defined the issue as "[w]hether CMS had a legitimate basis for denying [Kearney Regional's] participation in the Medicare program as a provider (hospital) because [Kearney Regional] did not have any inpatients at the time of its accreditation survey." The decision then observed that Kearney Regional "did not have any inpatients from December 30, 2013, until February 10, 2014, which is 42 days." And the ALJ concluded that Kearney Regional was not ...


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