Court Opinion

ID: 2661216
Source: CourtListenerOpinion
Date Created: 2014-04-03 05:51:33.705789+00
Date Added: 2024-06-11T13:00:11.580892
License: Public Domain

UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF COLUMBIA

__________________________________

CATHOLIC HEALTHCARE WEST,                  :
                                           :
                     Plaintiff,            :
                                           :
               v.                          : Civil Action 11-459 (GK)
                                           :
KATHLEEN SEBELIUS, in her                  :
official capacity as Secretary             :
of Health and Human Services,              :
                                           :
               Defendant.                  :
__________________________________

                                MEMORANDUM OPINION

        Plaintiff,    Catholic    Healthcare      West   (“CHW”),   brings     this

action    against     Defendant    Kathleen      Sebelius,   Secretary    of    the

U.S. Department of Health and Human Services (respectively, the

“Secretary” and “HHS”), pursuant to Title XVII of the Social

Security Act, 42 U.S.C. §§ 1395 et seq. (“the Medicare Act”).

CHW seeks judicial review of a final agency decision denying

Marian Medical Center’s (“Marian”) reimbursement claim arising

from     the    merger    of   Marian,   Mercy    Healthcare    Ventura    County

(“Mercy”), and CHW. 1

        This matter is before the Court on Plaintiff’s Motion for

Summary        Judgment   [Dkt.   No.    14]    and   Defendant’s   Motion      for

Summary        Judgment   [Dkt.   No.    15].    Upon    consideration    of    the

parties’        cross-motions,    the    administrative      record,     and    the

1
    CHW is the successor in interest to Marian.
entire     record     herein,        and    for       the    reasons          stated     below,

Plaintiff’s       Motion       for     Summary         Judgment          is        denied     and

Defendant’s Motion for Summary Judgment is granted.

I.    BACKGROUND

      On    March     15    1997,    Marian       entered      into      an    Agreement      of

Merger with Mercy, a two-hospital system whose sole corporate

member was CHW. Administrative Record (“A.R.”) 20, 409. CHW is a

Catholic       healthcare     system       co-sponsored           by    several        Catholic

women’s     religious        orders.        Id.       at    20.        CHW     oversees       and

coordinates the activities of a healthcare system consisting of

over 30 acute care hospitals in California, Arizona, and Nevada.

Id. Marian was a general acute care hospital located in Santa

Maria,     California.      Id.     Marian      was    owned      and    operated        by   the

Sisters of St. Francis of Penance and Christian Charity, St.

Francis     Province       (“Sisters       of   St.    Francis”).            Id.   The   merger

between Marian, Mercy and CHW became effective April 24, 1997.

Id. at 20, 411, 413-14, 493-95. Mercy, renamed CHW-CC, remained

as the surviving corporation. Id. at 20, 411, 413-14.

      A.     Statutory and Regulatory Framework

      Congress created the Medicare program in 1965 to pay for

certain specified, or “covered,” medical services provided to

eligible elderly and disabled persons. See 42 U.S.C. §§ 1395 et

seq. Under the program, health care providers are reimbursed for

a    portion     of   the    costs     that       they      incur      treating        Medicare

                                           - 2 -
beneficiaries pursuant to an extremely “complex statutory and

regulatory regime.” Good Samaritan Hosp. v. Shalala, 508 U.S.

402, 404 (1993). That regime is administered by the Centers for

Medicare & Medicaid Services (“CMS”), under the supervision of

the   Secretary.          CMS    contracts     with      a     network      of    fiscal

intermediaries       to    review    and    process      Medicare     claims     in   the

first instance.

      The    Medicare       Act     provides       for    reimbursement          of   the

“reasonable        cost     of    [Medicare]        services.”        42     U.S.C.     §

1395f(b)(1). “Reasonable” costs are those “actually incurred . .

. [as] determined in accordance with regulations.” 42 U.S.C. §

1395x(v)(1)(A). Under the Secretary's regulations in effect at

the   time    of     the    transaction       at    issue,       “[a]n      appropriate

allowance for depreciation on buildings and equipment used in

the   provision     of     patient   care     [was]      an    allowable     cost.”   42

C.F.R. § 413.134(a)(1997). 2 The costs are calculated by dividing

the asset's purchase price by its “estimated useful life” and

then prorating this amount by the percentage of the asset's use

dedicated     to   Medicare       services.    42     C.F.R.     §§   413.134(a)(3),

(b)(1).     Medicare      reimburses       providers     for    these      depreciation

costs on an annual basis.

2
  Since the merger at issue took effect on April 24, 1997, the
Court, like the parties, will refer to the regulations as
designated in the 1997 C.F.R., unless otherwise stated.

                                       - 3 -
     The    Secretary       determined      that         certain     disposals   of

depreciable assets may give rise to recognition of a “gain” or

“loss.”    That    figure   effectively        adjusts     the     annual   Medicare

depreciation payments to more accurately reflect the actual cost

of   providing      covered      services      to    Medicare       beneficiaries.

Entities    that    were    Medicare    providers         prior    to   statutorily

merging with an unrelated party are able to recoup gains and

losses    from    the   merger    subject      to   42    C.F.R.    §   413.134(f).

Subsection (f) allows providers to request reimbursement for the

difference between the “net book value” 3 and the compensation

actually received in exchange for assets disposed of prior to

December 1, 1997. 4 42 C.F.R. § 413.134(f)(1). Subsection (f)(2)

permits the inclusion of “gains and losses realized from the

bona fide sale ... of depreciable assets” in the determination

of allowable cost. 42 C.F.R. § 413.134(f)(2). 5

3
  “Net book value” is the remaining value of an asset after
depreciation costs are deducted. 42 C.F.R. § 413.134(b)(9).
4
   In 1997, Congress amended the Medicare Act to eliminate
depreciation adjustments for assets after December 1, 1997.
Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4404, 111
Stat. 251, 400 (1997).
5
  In addition to the gain or loss regulation at 42 C.F.R. §
413.134(f), the Secretary’s regulations address “[t]ransactions
involving   a  provider’s  capital   stock.  See  42   C.F.R.  §
413.134(l)(1997)(now substantively modified and recodified at 42
C.F.R. § 413.134(k)). The capital stock regulation, also
referred to as the statutory merger regulation, specifies that
providers that transfer assets pursuant to a statutory merger
are “subject to the provision of paragraph[] . . . (f) of [42

                                       - 4 -
     The     Secretary     issued       Program    Memorandum      (“PM”     or

“Memorandum”) A-00-76 in order to clarify the application of 42

C.F.R. § 413.134(l), the statutory merger regulation, to non-

profit providers. PM A-00-76 (Oct. 19, 2000) (A.R. 1676-79). The

Memorandum describes the “related organizations” and “bona fide

sale”     standards     under    which      mergers    between     non-profit

organizations should be analyzed. Id.

     As    to   “related   organizations,”        PM   A-00-76    notes    that

consideration should be given to continuity of control, or the

degree to which the pre-merged entities continue to exercise

control over the post-merger entity. Id. As to “bona fide sale,”

the Memorandum defines that term as an arm’s length transaction

for reasonable consideration. Id. PM A-00-76 explains that “a

large disparity between the sales price (consideration) and the

fair market value of the assets sold indicates the lack of a

bona fide sale.” Id. The Memorandum recommends reviewing “the

allocation of the sales price among the assets sold” to help

determine whether a bona fide sale took place. Id.

     PM    A-00-76    explains   that    its   effective   date   is   not   of

consequence because it clarified, rather than changed, existing

policy. Accordingly, the Memorandum concludes by stating that it

should be applied to “all cost reports for which a final notice

C.F.R. § 413.134] concerning . . . the realization of gains and
losses.” 42 C.F.R. § 413.134(l)(2)(i).

                                    - 5 -
of program reimbursement has not been issued and to all settled

cost reports that are subject to reopening . . . .” Id.

     B.      Procedural Background

     Marian claimed a loss on the disposal of assets on its

final Medicare cost report for the hospital’s fiscal year ending

April     24,    1997.    A.R.      65.   On    August    12,    1999,   the    fiscal

intermediary engaged by the Secretary to administer the Medicare

program denied Marian’s claim for reimbursement. Id. at 1723-27,

1861-64.

     Marian appealed the fiscal intermediary’s determination to

HHS’ Provider Reimbursement Review Board (“PRRB”). On November

3, 2010, the PRRB affirmed the intermediary’s denial of Marian’s

claim. Id. at 33-46. The PRRB concluded that the large disparity

between the consideration received and the fair market value of

the assets acquired indicated a lack of reasonable consideration

and, therefore, the lack of a bona fide sale. Id. at 46. Having

determined that there was no bona fide sale, the PRRB held that

payment    for    the    claimed     loss      on    disposal   of   assets    was   not

allowable. Id. The PRRB also concluded that the parties were not

related. Id. 39, 43.

     The CMS Administrator, who has the discretion to review any

final decision of the PRRB, chose to review the PRRB’s denial of

Marian’s    claim.       Id.   at    2-25.      On    January   4,   2011,     the   CMS

Administrator issued her decision and determined that, based on

                                          - 6 -
the    cost       appraisal       approach,       Marian        transferred      cash,      cash

equivalent assets, plant, and equipment worth approximately $67

million      (comprised          of    cash    and    cash      equivalent      assets     worth

approximately         $15.9       million       and      plant     and    equipment        worth

approximately $51.1 million) in exchange for the assumption of

liabilities worth approximately $32.7 million. Id. at 22. Based

on    these    figures,          the    CMS    Administrator        concluded        that    the

merger did not qualify as a bona fide sale because Marian never

sought      and    did     not    receive       reasonable       consideration        for    the

transfer of its depreciable assets. Id. at 21-22. Like the PRRB,

the   CMS     Administrator            held    that    Marian     was    “not    entitled     to

reimbursement for a loss on disposal of assets . . . .” Id. at

22.

       The    CMS     Administrator            also    disallowed        the    loss-on-sale

claim for a second, independent reason, i.e., that the merger

was    a     related-party             transaction.        Id.     at    22-24.      The    CMS

Administrator        explained          that    the      PRRB    “incorrectly        concluded

that the related party concept only applied to the entities[’]

relationship        that     existed       prior      to   the    merger”      and   that    the

principle in fact “applied to the parties’ relationship pre and

post merger.” Id. at 22. Although the CMS Administrator noted

that “the record is lightly developed with respect to whether

[Marian] was related to the merged entity through a continuity

of    control        and     ownership,”           the     Administrator         nonetheless

                                               - 7 -
concluded that there was sufficient evidence demonstrating that

the parties were related. Id. 23-24. The CMS Administrator’s

decision constitutes the final decision of the Secretary and is

now before this Court for review.

II.   STANDARD OF REVIEW

      The Medicare Act provides for judicial review of a final

decision made by the Secretary. 42 U.S.C. § 1395 oo(f)(1). The

Medicare     Act    instructs    the    reviewing     court    to     apply    the

provisions    of    the   Administrative       Procedures    Act    (“APA”).   Id.

Under the APA, the agency decision can be set aside only if it

is “arbitrary, capricious, an abuse of discretion, or otherwise

not   in   accordance     with   law”    or    “unsupported    by    substantial

evidence.” 5 U.S.C. §§ 702(2)(A), (2)(E).

      “The arbitrary and capricious standard [of the APA] is a

narrow standard of review.” Citizens to Preserve Overton Park,

Inc. v. Volpe, 401 U.S. 402, 416 (1971). It is well established

in our Circuit that “[t]his court's review is . . . highly

deferential” and that “we are ‘not to substitute [our] judgment

for that of the agency’ but must ‘consider whether the decision

was based on a consideration of the relevant factors and whether

there has been a clear error of judgment.’” Bloch v. Powell, 348

F.3d 1060, 1070 (D.C. Cir. 2003) (citations omitted). Thus, even

if this Court were to find “that other policies might better

further    the     Secretary’s   stated        objectives,    [the    Court    is]

                                       - 8 -
compelled    to    accept   the    policies       and    rules       adopted    by    the

Secretary so long as they have a rational basis, are reasonably

interpreted, and are consistent with the underlying statute.”

Sentara Hampton Gen. Hosp. v. Sullivan, 980 F.2d 749, 755 (D.C.

Cir. 1992).

       The substantial evidence standard is satisfied if the final

agency decision is supported by “such relevant evidence as a

reasonable     mind    might      accept     as     adequate          to    support    a

conclusion.” Consolo v. Fed. Maritime Comm’n, 383 U.S. 607, 619-

20 (1966) (citation and internal quotation marks omitted); City

of S. Bend, Ind. v. Surface Transp. Bd., 566 F.3d 1166, 1170

(D.C. Cir. 2009). Substantial evidence is “something less than

the weight of the evidence, and the possibility of drawing two

inconsistent conclusions from the evidence does not prevent an

administrative       agency’s     findings        from     being       supported      by

substantial       evidence.”    Consolo,     383        U.S.    at    620     (citation

omitted); S.E.C. v. Fed. Labor Relations Auth., 568 F.3d 990,

995 (D.C. Cir. 2009). Under this standard, a court may reverse

the agency’s findings “only when the record is so compelling

that    no   reasonable     factfinder     could         fail    to    find    to     the

contrary.” Orion Reserves Ltd. P’ship v. Salazar, 553 F.3d 697,

704 (D.C. Cir. 2009).

       When an agency interprets its own rule or regulation, the

interpretation “is entitled to the utmost deference.” St. Luke’s

                                     - 9 -
Hosp. v. Sebelius, 662 F. Supp. 2d 99, 102 (D.D.C. 2009); see

Ballard      v.   C.I.R.,         544     U.S.    40,           70    (2005)     (“An      agency’s

interpretation         of   its     own    rule       or    regulation         is    entitled        to

controlling       weight           unless        it        is        plainly     erroneous           or

inconsistent      with       the    regulation”)            (internal          quotation           marks

omitted). In the case of Medicare regulations, “[t]his broad

deference is all the more warranted” because “the regulation[s]

concern[] a ‘a complex and highly technical regulatory program,’

in   which    the      identification            and       classification           of     relevant

‘criteria necessarily require significant expertise and entail

the exercise of judgment grounded in policy concerns.’” Thomas

Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quoting

Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991)).

Therefore, courts must defer to the Secretary’s interpretation

unless an alternative reading is “compelled by the regulation’s

plain    language”      or    if     the       language          is    ambiguous,        by    “other

indications       of    the    Secretary’s             intent         at   the      time      of    the

regulation’s promulgation.” Thomas Jefferson, 512 U.S. at 512.

The task of the reviewing court is to set aside only those

agency    interpretations               that     are       affirmatively            and       plainly

“inconsistent” with the regulation itself. Id.

                                            - 10 -
III. ANALYSIS

       A.        The Secretary’s Interpretation of “Bona Fide Sale” in
                 PMA-00-76 Is Reasonable and Not Inconsistent with 42
                 C.F.R. § 413.134

       Plaintiff argues that the Secretary incorrectly relied on

PM A-00-76’s definitions of “related organizations” and “bona

fide    sale,”         because   those       definitions     are   contrary        to   the

regulations.

       As noted, supra, PM A-00-76 defines a “bona fide sale,” as

an arm’s length transaction for reasonable consideration. A.R.

1676-79. The Memorandum explains that the absence of reasonable

consideration indicates the lack of a bona fide sale. Id. PM A-

00-76 elaborates on what constitutes reasonable consideration,

stating that “[n]on-monetary consideration, such as a seller’s

concession from a buyer that the buyer must continue to provide

care    to       the    indigent,      may    not     be   taken   into    account       in

evaluating the reasonableness of the overall consideration (even

where such elements may be quantified in dollar terms). These

factors are more akin to goodwill than to consideration.” Id.

       PM A-00-76 further clarifies that when valuing assets, “the

cost approach is the only methodology that produces a discrete

indication of the value for individual assets . . . .” Id. By

contrast, “[b]oth the market approach and the income approach

produce      a    valuation      of    the    business     enterprise     as   a    whole,

without      regard      to   the     individual      fair   market   values       of   the

                                             - 11 -
constituent assets. As a result, both the market approach and

the income approach could produce an entity evaluation that is

less than the market value of the current assets.” 6 Id. The

Memorandum    concludes   that   “the    cost   approach    is     the   most

appropriate methodology” for the bona fide sale analysis in the

non-profit context. Id.

     Plaintiff   argues   that   PM     A-00-76’s     prohibition    against

considering      non-monetary     factors        in      evaluating       the

reasonableness   of   consideration     is   inconsistent   with    Medicare

regulations. 7 Plaintiff further argues that PM A-00-76’s focus on

6
   The Secretary recognizes that, in other circumstances,
including some cases interpreting the Internal Revenue Code and
other types of commercial cases, the market and income
approaches may be appropriate appraisal methodologies. See A.R.
17; Pl.’s Rep. at 8, 14-15 (citing cases and tax regulations).
However, the Secretary is correct that “Medicare rules may
diverge from IRS rule and Medicare policy is not bound by IRS
policy[.]” A.R. 17.
7
  Plaintiff contends that, relying on PM A-00-76, the Secretary
“erred in holding that the desire to maintain the religious
mission of the hospital cannot be considered in determining
whether the merger was for fair market value.” Pl.’s Mot. for
Summ. J. at 10. Plaintiff argues that under the Secretary’s
interpretation, “Marian could never have been sold for fair
market value, because Marian’s trustees were required by law to
select a merger partner on the basis of adherence to the
Catholic principles under which Marian was organized.” Id. at
13.

     However, as Defendant correctly points out “Plaintiff is
mistaken that the Secretary’s final decision held that Marian
was incapable of entering into an arm’s length transaction
because of its religious affiliation” and that “non-profit
providers, like for-profit providers, may engage in arm’s length
transactions     even     while     prioritizing    non-economic

                                 - 12 -
the cost approach as the most appropriate methodology to be used

in establishing the fair market value of assets is at odds with

42 C.F.R. § 413.134’s definition of fair market value. 8 Pl.’s

Mot. for Summ. J. at 13.

       Plaintiff’s arguments are not persuasive. The D.C. Circuit

has unambiguously upheld the Secretary’s interpretation of “bona

fide sale” as memorialized in PM A-00-76. See St. Luke’s Hosp.

v. Sebelius, 611 F.3d 900, 906 (D.C. Cir. 2010) (“[W]e uphold

the Secretary’s interpretation of 42 C.F.R. § 413.134(f) and

(l),   memorialized    in   PM   A-00-76,     because   it    is   not   ‘plainly

erroneous or inconsistent with the regulation’”); see Forsyth

Mem.   Hosp.   v.   Sebelius,    639   F.3d   534,   537     (D.C.   Cir.   2011)

(summarily rejecting “a host of arguments that the [Secretary]

should not have applied PM A-00-76[]” because the D.C. Circuit

had “previously upheld PM A-00-76 insofar as [was] relevant”).

considerations, so long as they bargain to receive reasonable
economic consideration for the transfer of their assets and meet
the other statutory and regulatory criteria.” Def.’s Rep. at 11
[Dkt. No. 19].
8
  Plaintiff contends that fair market value, as defined by 42
C.F.R. § 413.134(b)(2)(1997), “is established if the following
factors are present: (a) bona fide bargaining; and (b) well
informed buyers and sellers.” Pl.’s Mot. for Summ. J. at 13.
Plaintiff further contends that “[p]rior cases interpreting the
‘bona fide sale’ provision at 42 C.F.R. § 413.134 have
emphasized the centrality of arm’s length bargaining in
determining whether a bona fide sale occurred.” Id. at 17.
However, Plaintiff has failed to cite any Medicare cases where
the Secretary applied a valuation methodology other than the
cost approach.

                                   - 13 -
       Accordingly, the Secretary’s interpretation of “bona fide

sale,” as memorialized in PM A-00-76, is reasonable, not plainly

erroneous, and not inconsistent with prior agency statements.

       B.     The Secretary Appropriately Applied PM A-00-76 to the
              Merger at Issue

       Plaintiff argues that the Secretary “erred in implementing

PM A-00-76 because it failed to publish timely notice of the

same    in    the    federal   register     as    required        by   42   U.S.C.    §

1395hh(C)(1).” Pl.’s Mot. for Summ. J. at 30. Under the APA,

however, notice and comment is not required for “interpretive

rules”       or     “general   statements        of   policy.”         5    U.S.C.    §

553(b)(3)(A). As PM A-00-76 is “an interpretation of an existing

regulation [] [it] does not require notice and comment.” Forsyth

Mem. Hosp. v. Sebelius, 667 F. Supp. 2d 143, 150 (D.D.C. 2009);

see also St. Luke’s, 662 F. Supp. 2d at 104 (rejecting the

argument that PM A-00-76 was subject to notice and comment and

holding that “[n]or can there be any doubt that [PM A-00-76] is

properly an informal interpretation”).

       Plaintiff       additionally     argues        that    PM       A-00-76       was

impermissibly        retroactive.   Pl.’s      Rep.    at    39    [Dkt.    No.   18].

Plaintiff’s retroactivity argument has been soundly rejected by

the D.C. Circuit. See St. Luke’s, 611 F.3d at 906-907 (finding

“no impermissible retroactivity” with respect to the Secretary’s

application of PM A-00-76 to a merger effective as of January 1,

                                      - 14 -
1997   and   holding       that      “any     potential       retroactive        effect   was

completely     subsumed         in    the    permissible       retroactivity         of   the

agency adjudication”) (internal quotation marks omitted).

       Accordingly,       the        Court     concludes       that     the      Secretary’s

application        of    PM     A-00-76        to     the     merger       at     issue   was

appropriate. 9

       C.    The Secretary’s Finding that the Merger Was Not a Bona
             Fide Sale Was Supported by Substantial Evidence

       Given the validity of the interpretation relied upon by the

Secretary,         the    only        question        remaining       is        whether   the

Secretary’s finding that the merger between Marian, Mercy and

CHW    was   not    a    bona    fide       sale    was     supported      by    substantial

evidence.

       The Secretary based her decision, in part, on the large

discrepancy        between      the    consideration          received        for   Marian’s

assets and the value of those assets. Plaintiff takes issue with

the Secretary’s use of Plaintiff’s own cost approach appraisal 10

9
   In any event, even in the absence of PM A-00-76, the Secretary
would have had the authority to interpret her own regulations in
the context of a case-specific adjudication such as that which
preceded this action. See St. Luke’s Hosp. v. Sebelius, 611 F.3d
900, 907 (D.C. Cir. 2010) (“[The] Secretary generally may
lawfully interpret a regulation . . . [w]ithin the context of an
agency adjudication”).
10
  The appraisal relied upon by the Secretary was commissioned by
Marian itself and conducted by Valuation Counselors Group, Inc.
(“VCG”). See A.R. 729. The appraisal estimated the market value
of Marian’s assets using three approaches: cost, market and
income. The cost approach valued Marian’s assets at $51.1

                                             - 15 -
to determine that reasonable consideration was not exchanged.

Pl.’s Mot. for Summ. J. at 16-21; see A.R. 20-22.

      The    Secretary        explained     in    her   final    decision     why   she

relied   upon     the     cost      approach.    A.R.   22.     Her   explanation    is

consistent with PM A-00-76, which, as discussed supra, has been

upheld      by   the    D.C.     Circuit.      Using    the   cost    approach,     the

Secretary determined that $32.7 million, the approximate worth

of Marian’s liabilities, was not reasonable consideration for

$67 million in assets. 11 That determination is not unreasonable

and   certainly        does   not    reflect     “a   clear   error    of   judgment.”

million, the market approach at $38.5 million, and the income
approach at $28.5 million. Id. at 729-833.
11
   For the first time in its Reply, Plaintiff insists that the
Secretary   should    evaluate   the   reasonableness   of   the
consideration exchanged based on a valuation of Marian’s assets
at $35.28 million. The $35.28 million figure appears to be a
blending of the VCG appraisal report’s market and income
approaches, though no clear explanation is given in the report
as to how the appraiser calculated that figure. See Pl.’s Rep.
at 9-10; see also A.R. 832. As PM A-00-76 explains, “the cost
approach is the most appropriate methodology,” for the bona fide
sale analysis in the non-profit context.

     Moreover, Plaintiff has failed to submit evidence that the
cost approach does not accurately reflect the fair market value
of the assets in question. Nor has Plaintiff adduced evidence as
to how the alleged impairments in Marian’s value (i.e., the
alleged constructive trust and alleged need for seismic safety
upgrades, see Pl.’s Mot. for Summ. J. at 10, 18-21) should be
reflected in a downward adjustment to the assets’ cost approach
appraised value. Instead, Plaintiff simply insists that the
Secretary should have used its preferred methodology. In any
event, “absent extraordinary circumstances (not present here)
[courts] do not entertain an argument raised for the first time
in a reply brief.” U.S. v. Whren, 111 F.3d 956, 958 (D.C. Cir.
1997).

                                         - 16 -
Bloch, 348 F.3d at 1070; see St. Luke’s, 611 F.3d at 905 (“It is

logical [] to infer . . . that a ‘large disparity’ between the

assets’ purchase price and their fair market value indicates

that the underlying transaction is not in fact bona fide”).

       Additional    evidence   that    the    parties    did    not     engage    in

arm’s     length,      self-interested         bargaining        supports         the

Secretary’s    finding     as   well.   For     instance,       Marian    appeared

uninterested in maximizing the amount of consideration it would

receive from the sale of its assets. This is evidenced by the

fact Marian did not seek appraisal of its assets prior to the

merger. 12 See A.R. 729-833 (The VCG appraisal report, the only

appraisal in the Administrative Record, was not completed until

February 22, 1999, nearly two years after the merger).

       Marian also declined to place its assets for sale on the

open market. See Id. at 84-85 (Marian’s then-CEO and the Sisters

of St. Francis explained, “[o]ne of the principal reasons we

have focused on CHW is our firm belief that, with this group, we

have    the   best    assurance    that       the    mission,    presence,        and

sponsorship    of    the    Sisters     of     St.    Francis     can     be   most

effectively preserved and enhanced.”); id. at 214-15.                     Instead,

Marian was motivated by its desire to maintain the religious

12
   At the time of the merger, the only available information
about Marian’s fair market value with which the parties were
working was a one-page attachment to the parties’ Purchase Price
Allocation Agreement that was based upon a February 28, 1997
unaudited financial statement “to be adjusted.” See A.R. 301.

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mission of the hospital. See Pl.’s Mot. for Summ. J. at 10-15.

Although Marian’s desire to maintain the religious mission of

the hospital may be an important and worthwhile goal, such non-

monetary considerations are “not indicative of parties engaged

in   self-interested         bargaining        with      a    focus      on   maximizing

financial compensation.” Forsyth, 667 F. Supp. 2d at 151. Thus,

“[a party’s] non-monetary motivations may not form the basis of

a bona fide sale.” Id.

     The sizable gap between the “purchase price” and the value

of   Marian’s       assets,     as     well       as    the      other    circumstances

surrounding     the     merger,      constitute         substantial       evidence      that

supports the Secretary’s finding that reasonable consideration

was not exchanged, and that therefore, the merger was not a bona

fide sale.

     Because      the   Secretary’s         finding      that    the     merger   between

Marian,     Mercy     and    CHW     was    not     a    bona     fide    sale    was    an

independent       and       adequate       basis        for     denying       Plaintiff’s

reimbursement claim, the Court need not address the Secretary’s

determination that the merger parties were related. See Forsyth,

639 F.3d at 539 (limiting its analysis to the bona fide sale

issue “because it was an independent and sufficient ground for

refusing appellants their requested reimbursement” and therefore

declining    to     address    the     related         parties    issue);      Robert    F.

Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557, 563 (9th Cir. 2008)

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(finding   that    because        the    “[‘bona       fide   sale’]    issue   is

dispositive in this case, we do not reach the ‘related parties’

issue”).

IV.   CONCLUSION

      For all of the reasons stated herein, Plaintiff’s Motion

for   Summary   Judgment     is    denied        and   Defendant’s     Motion   for

Summary Judgment is granted.

                                              /s/________________________
January 29, 2013                             Gladys Kessler
                                             United States District Judge

Copies to: attorneys on record via ECF

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