Opinion ID: 170058
Heading Depth: 1
Heading Rank: 6

Heading: The Related Parties Inquiry

Text: The first issue is whether the Secretary properly applied the continuity of control doctrine to conclude that the parties to the consolidation were related under 42 C.F.R. § 413.134( l )(3). [12] Although this is a close issue, we conclude that the plain language of the regulations precludes the Secretary's interpretation. We must . . . be careful not to disrupt the plain language of the regulation itself. Utah Envtl. Cong. v. Bosworth, 443 F.3d 732, 743 (10th Cir.2006). Generally, [w]e afford an agency's interpretation of its own regulations substantial deference, except in those instances where such interpretation is unreasonable, plainly erroneous, or inconsistent with the regulation's plain meaning. Id. at 746 (citations and internal quotation marks omitted). Here, § 413.134( l )(3)(ii) prohibits revaluation of provider assets [i]f the consolidation is between two or more related corporations (as specified in § 413.17). The plain language of this provision, as well as the plain language of § 413.134( l )(3)(i), indicates that the related parties inquiry of § 413.134( l )(3) focuses solely on whether the parties to the consolidation were related prior to the transaction  not on whether they were related to the newly created entity. Where the plain language of a regulation is clear, [w]e cannot torture the language to reach the result the agency wishes. Aspenwood Inv. Co. v. Martinez, 355 F.3d 1256, 1261 (10th Cir.2004) (citation and internal quotation marks omitted). The agency, after all, could easily have drafted language to achieve the result which it now advocates but did not do so. Id. If the Secretary wants to take a position that is inconsistent with existing regulations, then the Secretary must promulgate new regulations under the notice-and-comment provisions of the APA, 5 U.S.C. § 553. Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 100, 115 S.Ct. 1232, 131 L.Ed.2d 106 (1995). Moreover, § 413.134( l )(3)'s plain language comports with the Secretary's intent at the time of the section's promulgation. For instance, in 1979, when first promulgating the regulation, the Secretary explained that assets may be revalued if two or more unrelated corporations consolidate to form a new corporation, but revaluation is not allowed if related corporations consolidate. 44 Fed.Reg. at 6,913. Also, the 1987 Medicare Intermediary Manual, the 1987 Letter from William Goeller, and the 1994 Letter from Charles Booth all contained this same interpretation. As the Supreme Court explained in Thomas Jefferson University, 512 U.S. at 512, 114 S.Ct. 2381, we must defer to the Secretary's interpretation unless an alternative reading is compelled by the regulation's plain language or by other indications of the Secretary's intent at the time of the regulation's promulgation. Here, both the plain language and the indications of the Secretary's intent at the time of the regulation's promulgation preclude the Secretary's current interpretation of § 413.134( l )(3). St. Francis and St. Joseph were unrelated parties prior to the consolidation, and under the plain language of § 413.134( l )(3), the Secretary's related party determination was arbitrary and capricious and unsupported by substantial evidence. We recognize that the district court reached the opposite conclusion, as did the Eastern District of Pennsylvania  the only other district court to consider this question expressly. See Jeanes Hosp. v. Leavitt, 453 F.Supp.2d 888, 899 (E.D.Pa.2006) (While the plain meaning of § 413.134, if read in a vacuum, may seemingly limit the related-party analysis to the transacting parties, in fact, § 413.17 is incorporated with, and must be read in conjunction with, § 413.134. Thus, the Court finds the Administrator's interpretation of the regulation reasonable.). Like the PRRB, however, we refuse to torture the language to reach the result the agency wishes. Aspenwood Inv. Co., 355 F.3d at 1261. The Secretary cannot save his interpretation by reference to 42 C.F.R. § 413.17. Sections 413.134( l )(3)(i) and 413.134( l )(3)(ii) do refer to § 413.17, but only for clarification as to when the two consolidating corporations are related. See § 413.134( l )(3)(ii) (If the consolidation is between two or more related corporations (as specified in § 413.17), no revaluation of provider assets is permitted.). Section 413.17 is certainly relevant, but under the plain language of § 413.134( l )(3), it does not stretch as far as the Secretary contends. The Secretary also cites two sources from the 1980s as support for his continuity of control interpretation: HCFA Ruling 80-4 and Medical Center of Independence v. Harris, 628 F.2d 1113 (8th Cir. 1980). These authorities involved on-going lease and management arrangements between two entities, where the two entities became related after they signed the initial contract. Neither of them addressed consolidations, and the Secretary's reliance upon them appears unfounded. Likewise, although Monsour Medical Center v. Heckler, 806 F.2d 1185, 1194 (3d Cir.1986) provides some support for analyzing control both before and after a transaction, the court in Monsour was not addressing a consolidation or the regulations at issue. Especially in light of his early interpretive materials, the Secretary's claim that the agency has consistently addressed consolidations under a continuity of control standard is questionable at best  even if the Secretary has arguably applied something similar in other contexts. In any event, the plain language of the regulations, as well as the indications of the Secretary's intent at the time of the regulation's promulgation, Thomas Jefferson Univ., 512 U.S. at 512, 114 S.Ct. 2381, preclude the Secretary's current continuity of control interpretation.