Opinion ID: 2995061
Heading Depth: 2
Heading Rank: 3

Heading: New Provider

Text: deference. Paragon has a number of arguments as to why the Secretary’s interpretation is incorrect, but the contentions we will initially consider regard the weight that should be given to the Secretary’s construction of 42 C.F.R. sec. 413.30(e). Paragon claims that the deference normally accorded agency interpretations of their own regulations is warranted only where the interpretation is both contemporaneous with the regulation and consistently applied. Appellant claims that the contemporaneity requirement for deference is not satisfied here because the Secretary’s interpretation relying solely on the transfer of CON rights to deny that a SNF is a new provider was not made until 1995, while the regulation was promulgated in 1979. Paragon also contends that the interpretation has not been consistent, relying on PRM sec. 2154.2.C., which defines relocate as [t]o move an existing provider to a new location and close the old provider. Paragon claims that this is the only definition of relocate in the PRM, and so should be applied whenever that word appears in the Medicare statute, regulations, or PRM provisions. Paragon seizes upon the last part of this definition to argue that MSC cannot be a relocated provider since the old provider, Shores, has not closed. Thus, the PRRB was inconsistent in labeling MSC as a relocated provider since this decision ignored the definition of relocate contained in the PRM. The Secretary claims that the current interpretation of 42 C.F.R. sec. 413.30(e) is not new, but does not cite any decision construing that regulation in the manner at issue here until 1995. The Secretary also cites a number of post-1995 PRRB decisions that have consistently applied the proffered interpretation. Appellee claims that the definition of relocate contained in PRM sec. 2154.2.C. has never been applied to new provider exemptions and concerns a completely different subject. HCFA has long recognized the concept of a partial relocation in applying new provider exemptions from the RCLs. Before we address the legal issues, we set forth the history of the interpretation of 42 C.F.R. sec. 413.30(e) as best we can determine from the submissions of both parties. That regulation has been given the same consistent interpretation since 1995, but neither party has provided evidence of any construction prior to that time. Thus, we assume that the regulation was first authoritatively construed in 1995. We also accept that the definition of relocate contained in PRM sec. 2154.2.C. has not been applied to the regulations concerning exemptions and the concept of a partial relocation has been recognized by HCFA. We first conclude that the apparent lack of contemporaneity between the promulgation of the regulation and the Secretary’s interpretation of it does not affect the high level of deference we owe to the Secretary. In the context of judicial deference to agency interpretations of administrative statutes under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), an agency construction formulated well after the statute’s enactment is still entitled to deference. See Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 740-41 (1995). Smiley explained that the rationale of Chevron is a presumption that Congress intended for ambiguities in a statute primarily to be resolved by the agency charged with administering that statute, and so deference is warranted regardless of whether the agency officials interpreting the law have any special knowledge of Congress’s specific intentions at the time the statute was passed. Id. The rationale for Seminole Rock deference is similar to that for Chevron. Martin v. Occupational Safety & Health Review Commission, 499 U.S. 144, 151 (1991) explains that regulatory deference is justified by the presumption that the power to authoritatively interpret the agency’s own regulations is part of the lawmaking powers delegated by Congress. Thus, just as with Chevron, deference to regulatory interpretations does not depend on contemporaneity, since no demonstration that the agency officials had special insight into the intentions behind the passage of the regulation is required. Instead, Congress is presumed to have delegated the primary power to fill regulatory ambiguities to the agency, and courts owe deference to agency decisions that clarify a regulation regardless of the fact that the agency waited to exercise this power. Moving on to the consistency question, we initially note that Paragon is not arguing that the Secretary has in the past used the PRM sec. 2154.2.C. definition of relocate in new provider determinations under 42 C.F.R. sec. 413.30(e) and PRM sec. 2604.1, but now refuses to do so. A HCFA witness at the PRRB hearing stated that HCFA had always recognized the concept of partial relocations, where the original provider does not close its doors, and Paragon has not brought forth any evidence to contest that assertion. Rather, Paragon contends that HCFA and the PRRB should have used the PRM sec. 2154.2.C. in making new provider determinations, contrary to the actual practice. Paragon relies on the canon that identical words used in different parts of the same act are intended to have the same meaning, Commissioner v. Keystone Consol. Indus., Inc., 508 U.S. 152, 159 (1993) (internal quotation marks omitted), to argue that the definition in PRM sec. 2154.2.C. should be applied to new provider determinations under PRM sec. 2604.1. The PRM, while a useful guide to interpreting the Medicare statute and regulations, is not strictly binding on the Secretary; we will uphold a decision despite certain variations from the manual. See Howard Young Med. Ctr. Inc. v. Shalala, 207 F.3d 437, 442-43 (7th Cir. 2000); Adventist Living Ctrs., Inc. v. Bowen, 881 F.2d 1417, 1423-24 & n.10 (7th Cir. 1989). Thus, Paragon’s argument that the Secretary is required to use the PRM definition has less weight than if that definition appeared in the Medicare statutes or regulations. Moreover, the canon Paragon relies on has reduced force when the identical word is used in different provisions which address disparate subjects. See Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932); see also United States v. Cleveland Indians Baseball Co., 121 S. Ct. 1433, 1441 (2001). PRM sec. 2154.2.C. is contained in a section of the PRM discussing when planning costs will be incorporated into the historical cost of a facility, while the issue in this case is exemptions from the RCLs for new providers, which is discussed in a wholly different chapter of the PRM. As noted above, the Secretary has consistently labeled a transfer of less than an entire facility as a partial relocation for purposes of the new provider exemption. Given all of these circumstances, we find nothing untoward in the Secretary’s declining to rely on the definition of relocate in PRM sec. 2154.2.C. in making new provider determinations under 42 C.F.R. sec. 413.30(e) and PRM sec. 2604.1. Thus, we conclude that Seminole Rock deference is owed to the Secretary’s interpretation of 42 C.F.R. sec. 413.30(e) despite the lack of contemporaneity and refusal to apply PRM sec. 2154.2.C./4
Having found that Seminole Rock deference is warranted, we next determine whether 42 C.F.R. sec. 413.30(e) is ambiguous. Paragon argues that the regulation has a plain meaning, which is contradicted by the Secretary’s interpretation. Paragon focuses on the phrase provider of inpatient services that has operated in the regulation and its relation to present and previous ownership. According to the appellant, the question of ownership must be decided with respect to the provider as a whole. A provider consists of all those attributes necessary for a SNF to operate[ ]-- that is, not just CON rights, but physical beds, employees, administrators, equipment, patients, referral sources, etc. Paragon backs this up with a citation to PRM sec. 2604.1, which states that a new provider is an institution that has operated . . . . Paragon claims that the use of the word institution in the PRM underscores the fact that provider in 42 C.F.R. sec. 413.30(e) refers to the facility as a whole, rather than just CON rights. Thus, only when the SNF as an entire operating institution is transferred to a new owner can the exemption for a new provider be denied. Despite Paragon’s arguments, we conclude that the regulation is ambiguous on what constitutes a provider. Paragon is correct that a nursing provider is composed of many different attributes, but changing one or more of these characteristics does not mean that the SNF becomes a different provider. For example, if a facility fires all its staff and hires a new one, but makes no other changes, an ordinary user of the English language probably would consider the SNF with the new staff to be the same provider as it was before. Similarly, a SNF that replaced all of its old equipment with new models would still be the same provider as it was before the modernization. Even if a SNF both fired its staff and replaced all of its equipment, one might still call it the same provider if the administration and physical plant remained the same. Of course, if all the various things that make up a SNF were new in the sense that they had not been part of another facility, then one would have to call that SNF a new provider. Conversely, if a nursing facility did not change any of its aspects, it would unquestionably continue to be the same provider rather than a new one. The difficulty in drawing a line between these two extremes is what makes the word provider ambiguous as used in the regulation.
Since the regulation is ambiguous, we next examine whether the Secretary’s interpretation is plainly erroneous or inconsistent with the text. We begin with what is basically an extension of Paragon’s argument for the clarity of the regulation’s language. Even if words like provider and operate[ ] are ambiguous, these must refer to more than just a provider’s CON rights. In determining whether a SNF operated under . . . previous ownership, the Secretary should not rely on CON rights alone but also take account of whether the staff, referrals, equipment, etc. of the facility are the same as the one from which the CON rights were obtained. Paragon’s argument does have a degree of merit--terms like operate[ ] and provider suggest that one should look to whether a group of attributes making up the institution have changed such that the SNF may be described as new, rather than just focusing on a single characteristic, such as CON rights. Nevertheless, we conclude that the Secretary’s interpretation is not so much at variance with the language of the regulation as to be deemed plainly erroneous or inconsistent with the text. Medicare is a highly complex and technical program, and so deference to the Secretary’s determinations in the course of administering the system is especially warranted. Thomas Jefferson, 512 U.S. at 512. Furthermore, an agency need not adopt the most natural reading of the regulation, but only a reasonable one. Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 702 (1991). The Secretary explains that a transfer of CON rights does not result in the provision of any new services. Even though the transferee might have new equipment, staff, etc., it will provide the same kind of services as the transferor of the CON rights, just at a different location. We cannot say that the Secretary’s interpretation that because no new services are being provided there is not a new provider is unreasonable. Paragon also has a few policy arguments as to why the Secretary’s construction of 42 C.F.R. sec. 413.30(e) should be invalidated, but none of these are convincing. The first is that the purpose of the new provider exemption is to allow a provider to recoup the higher costs normally resulting from low occupancy rates and start-up costs during the time it takes to build its patient population. San Diego Physicians & Surgeons Hosp. v. Aetna Life Ins. Co., [1990-1991 Transfer Binder] Medicare & Medicaid Guide (CCH) para. 39,007, at 25,061 (HCFA Administrator 1991). When MSC opened, it incurred large start-up costs and had a very low occupancy rate, resulting in high costs per patient. The receipt of CON rights from Shores did nothing to ameliorate these expenses. Thus, CON rights alone should not be used to deny that a SNF is a new provider since these rights have no relation to the purposes of the exemption. However, the Secretary has an adequate response to this argument. At the time in question, SNFs were reimbursed under Medicare the lesser of the reasonable cost of or the customary charge for the service in question./5 42 U.S.C. sec. 1395f(b)(1) (1994). The definition of reasonable cost excludes any cost found to be unnecessary in the efficient delivery of needed health services. 42 U.S.C. sec. 1395x(v) (1)(A). The Secretary contends, as with the textual argument above, that the transfer of CON rights simply shifts around SNF services. Creating a new facility and moving services to it, as Paragon did between MSC and Shores, is costly, but no benefit is gained in the overall delivery of health services if the new facility is providing the same services to the same populace as the old one. Thus, the Secretary’s judgment that the high start- up costs of MSC were unnecessary in the efficient delivery of needed health services is a reasonable one that will not be disturbed by this court. Paragon’s next arguments focus upon the effect of making a new provider determination depend upon CON rights. The first is that several states do not have CON or similar programs, and that a HCFA witness at the PRRB hearing admitted that in such a state MSC would have been considered a new provider. To make a new provider determination depend solely on which state the SNF happens to be in is unreasonable and arbitrary. The second is that under the Secretary’s interpretation a new provider cannot exist in Wisconsin because the state has imposed a moratorium on issuing new CON rights. Any SNF that begins operations will have to obtain its CON rights from an already existing provider and have the transferor provider’s history imputed to it, preventing it from being a new provider under 42 C.F.R. sec. 413.30(e). We again find the Secretary’s responses to these arguments to be sufficiently convincing so as to prevent us from declaring the interpretation to be plainly erroneous. Regarding the first, the Secretary points out that a CON program provides benefits for SNFs. More specifically, institutions like MSC are insulated from the effects of competition with new entrants. This fact reduces the need for new SNFs to obtain extra funds from Medicare in order to stay afloat. As for the second argument, the Secretary can rely in part on the state’s determination that no new nursing facilities are needed to support a decision that additional beds are unnecessary to the efficient delivery of health care services in that state. Paragon complains that Wisconsin also ap proved the movement of beds from Shores to MSC, indicating that the state thought that the move was necessary to serve the area of inner-city Milwaukee. However, there is no evidence that Wisconsin’s approval of the transfer of beds was made under the strict standard imposed by 42 U.S.C. sec. 1395x(v)(1)(A). Wisconsin might approve such relocations even though the cost is not necessary to the efficient delivery of health care. Thus, the Secretary could reasonably use Wisconsin’s decisions about the state’s need for nursing care to set an upper limit on the costs that are necessary for Medicare to bear, while denying reimbursement of costs in areas where the Secretary believes Wisconsin is too lenient. To summarize, the lack of the contemporaneity between the regulation’s promulgation and the adoption of the Secretary’s current construction does not eliminate the deference we owe to the Secretary. Likewise, this deference is also not affected by the Secretary’s decision to use a definition of relocate for the new provider exemption other than the one stated in the PRM for use on a different subject. The regulation is ambiguous, and the Secretary’s interpretation of the regulation is not plainly erroneous on either textual or policy grounds.