Court Opinion

ID: 7014968
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:17:23.425906+00
Date Added: 2024-06-11T16:10:20.387395
License: Public Domain

GREGORY, Circuit Judge,
dissenting.
Unlike the majority, I find that the Secretary’s denial of Maryland General Hospital’s (“MGH”) application for an exemption from cost limits under the Medicare program was based upon a reasonable interpretation of the regulation set forth in 42 C.F.R. § 413.30(e)(1996). Therefore, I respectfully dissent.
I.
In Maryland, a hospital desiring to operate a skilled nursing facility (“SNF”) must first secure a “certificate of need” (“certificate”) from the Maryland Healthcare Commission (“Commission”). Md.Code Ann., Health Gen. I § 19-20. The purpose of the certificate is to track and limit the State’s capacity for skilled nursing services. The Commission has the authority to issue a certificate for new beds if it finds that additional beds are needed to provide adequate care for the surrounding community. As an alternative, a SNF seeking a certificate may purchase rights to operate beds from existing SNFs. Because the purchase of existing rights does not add to the total inventory of beds statewide, the Commission will issue a certificate for purchased beds without a new finding of need.
In June 1994, MGH agreed to purchase ten beds from Villa St. Michael, six beds from Granada Nursing Home, and eight beds from Wesley Home (collectively “the Selling Providers”). The agreements between MGH and the Selling Providers called for the purchase of “operational” beds. The parties understood that the Selling Providers were to then replenish the sold beds by exercising their rights to “waiver” beds. On August 2, 1994, MGH submitted a certificate of need application to the Commission to obtain approval for a 24-bed hospital-based SNF. MGH’s certificate was approved by the Commission on July 11, 1995. For reasons not entirely clear from the record, the Commission reclassified the purchases from the Selling Providers as purchases of waiver beds, and the certificate was issued based on that reclassification. MGH did not object.
II.
Section 1395oo(f), Title 42 of the United States Code, provides for judicial review of final agency decisions on Medicare provider reimbursement disputes, and instructs the reviewing court to apply the relevant provisions of the Administrative Procedure Act (“APA”). Under the APA, agency action may be set aside only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. §§ 706(2)(A); see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 413-15, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). The Secretary’s interpretation of his own regulation is entitled to substantial deference, and “must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation.” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, *349512, 114 S.Ct. 2381, 129 L.Ed.2d 405 (1994) (internal quotation marks and citations omitted).
III.
As required by the regulation, the Secretary considers the “previous ownership” of the certificates in determining the length of time a provider has “operated.” 42 C.F.R. § 413.30(e) (1996). If the prior owner was providing equivalent services, and the potentially new provider was established through the transfer of some portion of the certificate rights underlying those services, the operating history of the prior owner “from which any [certificate of need] rights were obtained is imputed to the acquiring provider.” Paragon Health Network, Inc. v. Thompson, 251 F.3d 1141, 1145 (7th Cir.2001). The Secretary maintains that certificate rights are such an integral part of SNF operations that the transfer of these rights is considered to be a “change in ownership,” referred to by the Secretary as a “CHOW,” rather than the creation of a new provider. See PRM § 1500.7. Because Villa St. Michael, Granada Nursing Home, and Wesley Home operated skilled nursing facilities since June 1, 1989, July 1, 1989, and May 7, 1996, respectively, MGH’s length of operation under the regulation exceeded three years, requiring the denial of new provider status.
As a general matter, MGH accepts the reasonableness of the Secretary’s approach to interpreting the regulation. Furthermore, MGH concedes that insofar as the Secretary’s interpretation applies to “operational” beds, the interpretation is reasonable and entitled to deference. See Appellant’s Br. at 35, 36 n. 12, 38-39.1 Thus, the sole issue before the Court is MGH’s insistence that the Secretary’s interpretation cannot be extended to waiver beds.
In making its challenge, MGH focuses on the word “operated” in the regulation. Since waiver beds, by definition, are not currently operating, MGH contends that the beds have not “operated” for three years. In essence, MGH equates the state-law category of “operational” with the federal requirement that the provider have “operated” for less than three years. MGH argues that there could not have been a CHOW because the Selling Providers’ licenses were unaffected by the transfer.
The Secretary responds that MGH has misread the word “operated” in the regulation. The issue, of course, is not whether the specific beds operated for less than three years, but whether the “provider” operated for less than three years. Yet the focus on bed rights, according to the Secretary, is an attempt to infuse the undefined term “provider” with meaning. The bed rights are the critical link between two otherwise separate entities, and it is this link that gives rise to continuity of “provider” status. Thus, it is irrelevant that the beds had not previously been “operated.” As for MGH’s assertion that there has been no change in ownership, the Secretary argues that the impact of the transfer of certificate of need rights on the licensure of the Selling Providers is not the exclusive test for whether a CHOW has occurred; rather, the Secretary looks at the entire operations of the prior owners to determine whether a SNF was created through the purchase and relocation of a portion of other, preexisting SNFs.
*350Ultimately, it is the Secretary’s task to give content to the term “new provider.” Unlike the majority, I find that focusing on certificate of need rights is a reasonable exercise of interpretive discretion. See, e.g., Chevron U.S.A. Inc. v. Natural Res. Def. Council Inc., 467 U.S. 837, 864, 866, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The Secretary’s reliance on the difference between existing rights (operational or waiver) and newly-created rights (based on a finding of need) supports the purpose of the new provider exemption, which is to provide assistance in the provision of new services by new entrants to the skilled nursing facility market. The transfer of certificate of need rights does not result in an increase in the overall number of beds available under the state certification scheme. Extending the exemption under these circumstances would therefore ill serve its underlying purpose.2
Given the centrality of certificate rights in defining the class of existing service providers under state law, it is quite reasonable for the Secretary to rely on these bed rights in giving meaning to related federal regulations. Deference is especially warranted when “the regulation concerns ‘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., 512 U.S. at 512, 114 S.Ct. 2381 (quoting Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697, 111 S.Ct. 2524, 115 L.Ed.2d 604 (1991)). Because Medicare is such a complex, regulatory program, this Court should decline to displace the Secretary’s policy choices in favor of its own.
I would also find that the Secretary’s rejection of a operational/waiver bed distinction is reasonable. It is of little consequence that the transferred beds had not been made operational. Waiver beds are available for service at the discretion of the owner of the waiver right. The owner’s right to bring a waiver bed into operation is not significantly different from the rights the owner holds as to all other beds. *351Just as the owner may take operating beds out of service, so too can he bring waiver beds into service.
The whole point of buying and selling bed rights is, of course, to transfer the right to use. MGH has not demonstrated that a seller’s use or non-use of the bed right affects the value of the right in any way. See Maryland Gen. Hosp., 155 F.Supp.2d at 464-65. Simply put, the buyer values the right to use the bed, regardless of whether the bed has been used. The fact that some operational beds may not have actually been operated, but rather only administratively classified as ready for operation, makes the asserted distinction between waiver and operational beds even less persuasive.
Additionally, MGH’s own actions make clear that there is no relevant or significant difference between operational beds and waiver beds. MGH initially sought to buy operational beds from the Selling Providers. It was only after the sale had been effectively finalized that the Commission reclassified the sale as involving waiver beds. The reclassification seems to have been motivated by administrative convenience, and did not effect a substantive change in MGH’s operations. MGH was perfectly satisfied with the reclassification at the time, and now concedes that it would not have been entitled to the new provider exemption had the original classification not been changed. It can hardly be concluded that the Secretary’s interpretation is unreasonable when MGH cannot show any substantive effect on their operations related to the reclassification of the beds.
IV.
Congress has specifically delegated to the Secretary responsibility for determining when exemption from routine cost limits for skilled nursing facilities is warranted. 42 U.S.C. § 1395yy(c). The Secretary has fulfilled his obligation through regulation, 42 C.F.R. § 413.30(e), and has sought to enforce the regulation through an interpretation that is neither plainly erroneous nor inconsistent with the language of the regulation. Accordingly, the Secretary’s interpretation “must be given controlling weight[.]” Thomas Jefferson Univ., 512 U.S. at 512, 114 S.Ct. 2381. I, therefore, would uphold the Secretary’s interpretation that MGH is not entitled to the “new provider” exemption set forth in § 413.30(e), and affirm the district court’s order granting summary judgment to the Secretary. Accordingly, I respectfully dissent.

. The majority would ignore this critical concession by MGH. See Majority Op. at 346 n. 2. Generally, concessions made by litigants are binding on appeal. See Hagan v. McNallen (In re McNallen) 62 F.3d 619, 625 (4th Cir.1995). Thus, the Court errs in scrutinizing an interpretation of the Secretary that MGH has elected not to challenge.

. This analysis is in accord with that of the Seventh Circuit in Paragon Health Network, Inc. v. Thompson, 251 F.3d 1141 (7th Cir.2001). In Paragon, the Secretary found that the transfer of operational bed rights rendered the exemption unavailable for the purchasing SNF facility. The SNF argued that the Secretary was plainly wrong to rely on the bed rights. The court explained the ambiguity of the term “new provider” as follows:
[The purchasing SNF] 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 the 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 the 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 tire word “provider” ambiguous in the regulation.
Paragon, 251 F.3d at 1148. The court accepted as reasonable the Secretary's interpretation that because certificate rights were a necessary and integral feature of operating as a provider and the transfer of certificate rights would not increase the overall amount of nursing services provided to the community, no new provider had been established. Id. at 1149.