Southeast Arkansas Hospice Inc v. Department of Health and Human Services

Filing 36

OPINION AND ORDER denying 27 SEARK's second motion for a temporary restraining order. Signed by Judge Kristine G. Baker on 06/11/2014. (rhm)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
EASTERN DIVISION
SOUTHEAST ARKANSAS HOSPICE, INC.
v.

PLAINTIFF

Case No. 2:13-cv-00134-KGB

SYLVIA BURWELL, SECRETARY,
UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES

DEFENDANT

OPINION AND ORDER
Plaintiff Southeast Arkansas Hospice, Inc. (“SEARK”) brings this action against Sylvia
Burwell, the Secretary of the United States Department of Health and Human Services (“HHS”),
alleging that the Secretary’s regulation purportedly prohibiting SEARK from discharging
hospice patients who exhaust their hospice benefits operates as a regulatory taking and that the
provider agreement is an unconscionable contract of adhesion, requiring SEARK to continue to
serve hospice patients even after their benefit period has ended while making no provision for
payment to the hospice after the benefit period ends.
Before the Court is SEARK’s second application for a temporary restraining order to stay
collection of demands for repayment pending final adjudication (Dkt. No. 27). The Secretary
has responded (Dkt. No. 31), and a hearing was conducted on June 6, 2014. After the hearing,
the Secretary filed a supplemental response to SEARK’s motion (Dkt. No. 32).

For the

following reasons, SEARK’s request for a temporary restraining order is denied (Dkt. No. 27).
I.

Background

This is SEARK’s second request for preliminary injunctive relief. The factual and legal
background of this case is set forth in more detail in the Court’s February 20, 2014, Opinion and
Order denying SEARK’s previous request for a preliminary injunction (Dkt. No. 17).

SEARK operates hospice-care facilities in Helena, Arkansas, and Pine Bluff, Arkansas,
and receives reimbursement for hospice care provided to Medicare beneficiaries pursuant to the
hospice benefit included in Medicare Part A. See 42 U.S.C. §§ 1395c, 1395f(a)(7). A Medicare
beneficiary may elect hospice care if at least two physicians certify that he or she is terminally
ill, with a life expectancy of six months or less.

See 42 U.S.C. §§ 1395f(a)(7)(A),

1395x(dd)(3)(A). Medicare generally pays hospice providers a fixed amount for each day the
provider provides care to an eligible beneficiary. 42 U.S.C. § 1395f(i)(1); 42 C.F.R. § 418.302.
Hospice beneficiaries are generally limited to six months of hospice care, but if a beneficiary
lives longer than six months, coverage may be extended for an unlimited number of 60-day
periods. See 42 U.S.C. § 1395d(d)(1).
To ensure that hospice care payments do not exceed the costs of treatment in a
conventional setting, there is an aggregate “cap” on the total amount paid in reimbursements to
hospice providers for all eligible patients in any given fiscal year. 42 U.S.C. § 1395f(i)(2)(A);
H.R.Rep. No. 98–333, at 1 (1983), U.S. Code Cong. & Admin. News 1983, p. 1043. As
discussed in the Court’s prior Opinion and Order, the regulation implementing the cap, 42 C.F.R.
§ 418.309, was amended in 2011 as a result of litigation in several district and circuit courts
challenging the regulation’s “streamlined methodology” for calculating the cap amount.
Hospice providers typically receive Medicare payments through a fiscal intermediary.
The fiscal intermediary is responsible for calculating the hospice cap for the relevant accounting
year. When it is determined that a provider exceeded its aggregate cap for an accounting year,
the fiscal intermediary issues a demand for the overage known as a Notice of Program
Reimbursement (“NPR”). See 42 C.F.R. § 418.308(d). Under 42 U.S.C. § 1395oo(a), a hospice
provider may challenge an NPR and seek a hearing before the Provider Reimbursement Review

2 

Board (“PRRB”). If the provider is dissatisfied with the PRRB’s ruling, it may obtain judicial
review by filing a civil action within 60 days of the PRRB’s final determination.

Id. §

1395oo(f)(1).
SEARK voluntarily entered into a provider agreement with the Secretary in October
2004. SEARK agreed as the provider of services “to conform to the provisions of section 1866
of the Social Security Act and applicable provisions in 42 CFR” to receive payment under Title
XVIII of the Social Security Act (Dkt. No. 8, at 83). SEARK now brings this instant action
contending the provider agreement, together with the relevant regulations, violates the Takings
Clause of the Fifth Amendment and constitutes an unconscionable contract of adhesion.
Specifically, SEARK takes issue with the cap itself and the prohibition on discharging patients
who exceed the cap amount.
SEARK previously sought a preliminary injunction to stay enforcement of seven
demands for repayment at issue in SEARK’s complaint and now its amended complaint.
SEARK also sought to enjoin the application of 42 C.F.R. § 418.26, which it believes prohibits
discharge of patients who exceed their annual cap amount, and 42 C.F.R. § 418.309, the
regulation implementing the methodology for calculating the cap amount. The Court conducted
a preliminary injunction hearing on February 7, 2014, and subsequently denied SEARK’s request
for a preliminary injunction (Dkt. No. 17). SEARK now requests a temporary restraining order
based on what it contends are “new facts” pertaining to the last two of the seven NPRs (Dkt. No.
27, at 2).
By way of background, the first five NPRs at issue in this case were issued by SEARK’s
fiscal intermediary, Palmetto GBA, to SEARK’s respective facilities between January and May
2013 for fiscal years ending October 31, 2009, October 31, 2010, and October 31, 2011.

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SEARK’s Chief Executive Officer, Dr. Clifford Flowers, testified at the first hearing that he had
submitted a repayment plan and initial payment for each of these NPRs. SEARK has appealed
these five NPRs to the PRRB. According to the record, as to each of these five NPRs, SEARK,
in its requests for a hearing and expedited judicial review (“EJR”), requested a recalculation of
the cap determination and, citing 42 C.F.R. § 418.26, asserted that its provider agreement with
Medicare resulted in a regulatory taking, an unconscionable contract, and illegal subsidization.
The PRRB issued its rulings on August 30, 2013, and remanded the cap determinations to the
Medicare Administrative Contractor (the “MAC”) for recalculation under the requested
methodology, except for the NPR to the Helena facility for fiscal year ending October 31, 2009,
which had already been appealed and recalculated.

The PRRB concluded that it lacks

jurisdiction over the challenge to the validity of 42 C.F.R. § 418.26.
SEARK received two additional NPRs on January 10, 2014, for the fiscal year ending
October 31, 2012—one NPR for SEARK’s Helena facility for $323,104.00, and one NPR for its
Pine Bluff facility for $117,580.00. Unlike the first five NPRs, these January 2014 NPRs had
not been appealed at the time of the February 7, 2014, preliminary injunction hearing, although
SEARK stated it was in the process of appealing these NPRs to the PRRB.
On May 14, 2014, SEARK filed its second application for a temporary restraining order
to allege new facts (Dkt. No. 27). Those new facts involve subsequent developments regarding
the January 2014 NPRs. By letter dated April 15, 2014, Palmetto informed SEARK that CMS
had approved SEARK’s request for a 60-month repayment plan for the January 2014 NPR for its
Helena facility originally totaling $323,104.00. However, on May 1, 2014, Palmetto sent to
SEARK a letter notifying it that CMS denied SEARK’s request for a 60-month repayment plan
for the January 2014 NPR for its Pine Bluff facility originally totaling $117,580.00. The letter

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stated that the request was denied due to “habitual Cap exceedance and other pertinent financial
information” (Dkt. No. 27-2, at 1). Palmetto demanded full payment of the $111,459.32 in
outstanding principle. The letter indicated that all payments to SEARK’s facility would be
suspended in 15 days if full payment was not received. By letter dated May 2, 2014, CMS
informed SEARK that all payments were being withheld and applied against the overpayment
for the outstanding $111,459.32 demanded in the January 2014 NPR for $117,580.00 (Dkt. No.
27-3).

It appears from the record before the Court that this withholding applies only to

SEARK’s Pine Bluff facility. SEARK’s two facilities are assigned separate Medicare provider
numbers and receive separate NPRs addressed to each facility by its provider number.
SEARK maintains that, as to its payment plans in place currently, no payments have been
missed or late. SEARK references in its filings a later telephone call and purported “mistake
which prevented . . . entering the repayment plan on the $117,000.00 amount,” (Dkt. No. 27, at
2). The Court notes SEARK did not develop a mistake theory in any of the proof offered.
SEARK protests the Secretary’s actions to withhold all payments for services rendered,
especially during the pendency of this litigation.

SEARK requests that the Court issue a

temporary restraining order to stay the withholding of payments due and future payments and to
stay further the collection of the repayment demands. It is not clear whether SEARK seeks to
stay collection only as to the repayment demand for the January 2014 NPR for which the request
for a payment plan was denied or as to all of the repayment demands.
According to the testimony of SEARK’s Chief Executive Officer, Dr. Clifford Flowers,
SEARK’s primary source of income is Medicare hospice benefits for eligible patients. Dr.
Flowers is a pharmacist, not a medical doctor. At the preliminary injunction hearing, Dr.
Flowers testified that, when SEARK entered into the Medicare program, he understood SEARK

5 

would be paid for services rendered but did not have a clear understanding of what the hospice
cap meant to SEARK in terms of payments for services rendered. Dr. Flowers testified that
SEARK first opened in 2002 (although the agreement is dated 2004), and SEARK received as a
provider its first NPR in 2006. Dr. Flowers said at the June 6, 2014, hearing that he was not
aware of the hospice cap until he received his first NPR in 2006.
At both hearings, Dr. Flowers explained that he interprets 42 C.F.R. § 418.26 to forbid
discharging a patient simply because the patient has exceeded the cap. At the first hearing, Dr.
Flower stated that he attributes much of SEARK’s financial troubles to SEARK’s compliance
with § 418.26 and the hospice cap.
Dr. Flowers said at both hearings that he believes that he has an agreement and contract
with the federal government to be paid for providing services to Medicare beneficiaries. He
views the agreement as a contract and considers agreement and contract to be synonymous. Dr.
Flowers also believes the hospice cap makes the agreement unfair to him. He explained that
Medicare continues to pay for services SEARK provides to a patient who has exceeded the
annual cap amount. Dr. Flowers believes that the recoupment for overages is illegal and results
in SEARK subsidizing hospice care for Medicare beneficiaries. Dr. Flowers said at the February
7, 2014, hearing that he believes the cap itself should be invalidated. Dr. Flowers conceded at
the second hearing that he, on behalf of SEARK, voluntarily entered into the agreement to abide
by all applicable regulations in the Social Security Act, but he said the mere fact that he
volunteered to participate in the hospice program does not make it fair that he is subject to what
he describes as an unconscionable contract and illegal recoupments.
Dr. Flowers testified at the June 6, 2014, hearing that he was told he is being placed on
100 percent withholding because he had been over the cap too many times. Dr. Flowers said he

6 

has not had more than 15 NPRs since the first NPR in 2006, but he said it is possible that he has
received at least 10 NPRs. He acknowledged that, prior to the recent denial of his request for a
repayment plan for the January 2014 NPR for $117,580.00, HHS always granted his requests for
repayment plans, although he said at the previous hearing that two past requests were modified to
shorten the proposed plans from 60 to 36 months.
Dr. Flowers does not believe that he could have prevented exceeding the cap because the
regulations do not let him discharge patients who exceed the cap; he said he sees no way to avoid
exceeding the cap without discharging patients. At the first hearing, Dr. Flowers acknowledged
that 42 C.F.R. § 418.26 permits a hospice to discharge a patient whose physical or emotional
status has changed, such that the patient can be moved into a nursing home setting or discharged
home from the hospice setting. He said that his medical director has continued to certify this
patient as terminally ill and that he and his medical director have not discussed whether other
types of care such as curative care, not hospice care, may be more appropriate for this patient.
Dr. Flowers also agreed at the first hearing that his medical director is responsible for evaluating
patients to determine whether they are considered terminally ill and have a life expectancy of six
months or less. Despite the issues SEARK has experienced with the hospice cap since 2006, Dr.
Flowers admitted on cross examination at the first hearing that he has not sought any training on
how to better evaluate incoming hospice patients to help stay under the cap. He claims he does
not know how one would seek training for such an assessment because no doctor can guarantee
how long a person is going to live.
Dr. Flowers said at the second hearing that he had not attended any training since the first
hearing. He continues to assert his belief that no one could receive training for assessing patients
and their end of life expectancy. He believes that, if he attempted to assess patients himself, this

7 

would put him in a position to contradict the doctors who refer patients to his facilities. Dr.
Flowers said he accepts every patient a doctor refers to SEARK, although he acknowledged that
his medical director must also certify the patient as a hospice patient.
Dr. Flowers testified at the first hearing that he was currently paying $25,000.00 per
month in payment plans for overage repayments and was facing the threat of a 30 percent
withholding on his current funds pursuant to the January 2014 NPRs. Dr. Flowers testified at the
first hearing that he would go out of business if forced to pay $25,000.00 in repayment while
having 30 percent of his reimbursement funds withheld. At the second hearing, Dr. Flowers
testified that the Pine Bluff facility is in the process of closing in the face of the 100 percent
withholding of payments. He said that he has fired all but two employees, a secretary and a
nurse, who are being retained to close down the business. He said he is unsure of the status of
his Helena facility going forward.
Dr. Flowers said SEARK is in the process of transferring its Pine Bluff patients and is no
longer able to provide future care to those patients. Dr. Flowers said that not all patients at the
Pine Bluff facility will be able to be transferred to other hospice facilities. He said the Area
Agency on Aging is in the process of reviewing four patients for home health services. He said
at least one other hospice provider is assessing his patients at the Pine Bluff facility. Dr. Flowers
said some patients have been placed in another hospice, but only those patients who are not over
the cap have been placed. On cross examination, Dr. Flowers denied that any of the patients who
cannot find other hospice programs are being denied because the patients were determined not to
meet the qualifications for receiving hospice care. He said one hospice provider in particular
was worried about taking patients who had exceeded the cap.

8 

Dr. Flowers stated that there is no option for care for his patients who cannot be placed in
other hospice facilities. However, he admitted on cross examination that patients can go back to
curative care in the hospital or nursing home setting.
At the June 6, 2014, hearing, SEARK introduced two letters from the PRRB dated May
12, 2014, with the PRRB’s rulings on SEARK’s requests for hearing and EJR as to the two
January 2014 NPRs. The Secretary’s counsel was not aware of these rulings prior to the hearing.
II.

Analysis

When determining whether to grant a motion for temporary restraining order or
preliminary injunction, this Court considers: (1) the movant’s likelihood of success on the
merits; (2) the threat of irreparable harm to the movant; (3) the balance between the harm to the
movant and the injury that granting an injunction would cause other interested parties; and (4)
the public interest. Heartland Acad. Cmty. Church v. Waddle, 335 F.3d 684, 690 (8th Cir. 2003);
Dataphase Sys. Inc. v. CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981). SEARK bears the
burden of establishing the propriety of preliminary injunctive relief. Roudachevski v. All-Am.
Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); Watkins, Inc. v. Lewis, 346 F.3d 841, 844
(8th Cir. 2003). “At base, the question is whether the balance of equities so favors the movant
that justice requires the court to intervene to preserve the status quo until the merits are
determined.” Dataphase, 640 F.2d at 113. While no single factor is determinative in balancing
the equities, id., “the probability of success factor is the most significant.” Home Instead, Inc. v.
Florance, 721 F.3d 494, 497 (8th Cir. 2013). “To that end, ‘the absence of a likelihood of
success on the merits strongly suggests that preliminary injunctive relief should be denied.’”
Barrett v. Claycomb, 705 F.3d 315, 320 (8th Cir. 2013) (quoting CDI Energy Srvs., Inc. v. West
River Pumps, Inc., 567 F.3d 398, 402 (8th Cir. 2009)).

9 

Where a preliminary injunction is sought to enjoin the implementation of a duly enacted
statute or regulation, the district court must make a threshold finding that a party is likely to
prevail on the merits. See Planned Parenthood Minnesota, N. Dakota, S. Dakota v. Rounds, 530
F.3d 724, 732-33 (8th Cir. 2008). Therefore, the Court begins with this factor.
Courts in the Eighth Circuit apply a heightened standard for determining success on the
merits where the movant seeks to enjoin “duly enacted” legislation. “Normally, a litigant
seeking a preliminary injunction need only show a ‘fair chance’ of succeeding on the merits.”
Edwards v. Beck, 946 F. Supp. 2d 843, 847 (E.D. Ark. 2013). However, “parties moving to
preliminarily enjoin a statute or regulation must establish that they are ‘likely to prevail on the
merits,’ because such promulgations came about by a ‘presumptively reasoned democratic
process[ ].’” Barrett, 705 F.3d at 324 n.4 (quoting Rounds, 530 F.3d at 732). The heightened
“likely to prevail” standard requires greater than a 50 percent likelihood of prevailing on the
merits. Edwards, 946 F. Supp. 2d at 847 (citing Rounds, 530 F.3d at 732-33).
The Secretary initially argued that SEARK cannot show a likelihood of success on the
merits because the Court lacks subject matter jurisdiction due to SEARK’s failure to exhaust its
administrative remedies as to January 2014 NPRs. In view of SEARK’s submitting the two May
12, 2014, letter rulings from the PRRB, the Secretary’s counsel indicated it may be necessary to
file a supplemental administrative record and a supplemental response to SEARK’s current
request for a temporary restraining order. The Secretary subsequently filed her supplemental
response to SEARK’s motion, and the Secretary has conceded that the January 2014 NPRs
appear to be ripe for appeal.
Nonetheless, the Secretary argues in her supplemental response that the Court lacks
subject matter jurisdiction due to SEARK’s failure to request the PRRB to grant EJR to

10 

determine the constitutionality of the 42 U.S.C. § 1395x(dd)(2)(D) or 42 C.F.R. § 418.100(d).
The Secretary essentially argues that SEARK failed to challenge the right or applicable
regulations and statutes and, therefore, failed to obtain a final decision on the regulations and
statute actually at issue. The Secretary made these arguments in opposing SEARK’s first request
for injunctive relief, although she presented her jurisdictional challenges as preliminary
arguments. The Secretary has since filed her motion to dismiss based in part on this and other
jurisdictional challenges (Dkt. No. 29). That motion is not yet ripe.
Because this matter is before the Court on a request for temporary restraining order, and
because the jurisdictional challenges are raised in the Secretary’s unripe motion to dismiss with
this Court not having heard yet SEARK’s response to the challenges, the Court will proceed to
rule on the request for injunctive relief before it without reaching a definitive answer on whether
it has jurisdiction. Even assuming the Court has jurisdiction, SEARK is unlikely to succeed on
the merits of its claims, regardless if this Court applies the “fair chance of succeeding on the
merits” or the heightened “likely to prevail on the merits” standard.
SEARK primarily challenges the Secretary’s regulations under the Takings Clause of the
Fifth Amendment, which provides that private property shall not “be taken for public use,
without just compensation.” U.S. Const. amend. V. SEARK also alleges an unconscionable
contract. The Court will address each claim in turn.
In denying SEARK’s first request for injunctive relief, the Court found that SEARK
failed to make the requisite showing of a likelihood of success on the merits on its Fifth
Amendment claim. The Court’s ruling focused on SEARK’s voluntary participation in the
hospice program, noting that “[i]t is well established that government price regulation does not
constitute a taking of property where the regulated group is not required to participate in the

11 

regulated industry.” Whitney v. Heckler, 780 F.2d 963, 972 (11th Cir. 1986) (see Bowles v.
Willingham, 321 U.S. 503, 517-18 (1944) (rent controls do not constitute prohibited taking
because statute did not require landlords to offer their apartments for rent)).
This Court found instructive Minnesota Association of Health Care Facilities, Inc. v.
Minnesota Department of Public Welfare, in which the Eighth Circuit held that a state statute
limiting fees nursing homes participating in the state’s Medicaid program may charge to nonMedicaid patients did not result in a taking because participation in the state’s Medicaid program
is voluntary. 742 F.2d 442, 446 (8th Cir. 1984). The Eighth Circuit emphasized that the
voluntary nature of participation in Medicaid “forecloses the possibility that the statute could
result in an imposed taking of private property which would give rise to the constitutional right
of just compensation” and determined that it was unnecessary “to employ the adequacy standards
applicable to state regulation of public utility rates.” Id. This Court noted that the Eighth
Circuit’s rationale also applies to price controls imposed by virtue of participating in Medicare
programs. See Whitney, 780 F.2d at 972 (holding that a temporary statutory freeze on fees nonparticipating physicians could charge Medicare patients did not constitute a taking because
physicians were not required to treat Medicare patients; participation in Medicare is voluntary)
(citing Minnesota Ass’n of Health Care Facilities, 742 F.2d at 446); see also Garelick v.
Sullivan, 987 F.2d 913, 917 (2d Cir. 1993) (rejecting plaintiff anesthesiologists’ challenge to
statute limiting amount non-participating physicians may charge to Medicare beneficiaries
because plaintiffs voluntarily chose to provide services to Medicare patients and noting that
“[a]ll court decisions of which we are aware that have considered takings challenges by
physicians to Medicare price regulations have rejected them in the recognition that participation
in Medicare is voluntary.”).

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In addition, several courts specifically addressing the validity of the cap methodology in
42 C.F.R. § 418.309(b)(1) have rejected Fifth Amendment challenges to that regulation based on
the voluntary nature of participation in the hospice program. See Hospice of New Mexico, LLC
v. Sebelius, 691 F. Supp. 2d 1275, 1293 (D.N.M. 2010) aff’d, 435 F. App’x 749 (10th Cir. 2011);
Zia Hospice, Inc. v. Sebelius, 793 F. Supp. 2d 1289, 1299 (D.N.M. 2011); Native Angels Home
Care Agency, Inc. v. Sebelius, 749 F. Supp. 2d 370, 378 & n.6 (E.D.N.C. 2010).
SEARK does not dispute that it voluntarily chose to become a hospice provider and
participate in the hospice Medicare program. Nonetheless, SEARK argued in support of its first
request for injunctive relief that its participation in the hospice program at this point is not
voluntary in view of the potential financial burdens of closing its business (Dkt. No. 13, ¶ 48).
At the first hearing, Dr. Flowers testified SEARK cannot go out of business because this would
prevent Dr. Flowers from being able to participate personally in any other federal programs as a
medical provider or pharmacist. The Court was not persuaded that these arguments establish
legal compulsion. The only compulsion to provide hospice services is imposed by virtue of
SEARK’s voluntary choice to provide services under the hospice program. SEARK’s arguments
as to the potential financial burdens of closing its business fail because generally economic
hardship does not amount to legal compulsion for purposes of the Takings Clause.

See

Minnesota Ass’n of Health Care Facilities, 742 F.2d at 446 (“MAHCF contends that business
realities prevent nursing homes from leaving the Medicaid program voluntarily. Despite the
strong financial inducement to participate in Medicaid, a nursing home’s decision to do so is
nonetheless voluntary.”); Garelick, 987 F.2d at 917 (where state law required anesthesiologists
on hospital staff to treat Medicare patients, anesthesiologists were not compelled to serve
Medicare patients in that they could avoid this requirement by practicing in an outpatient setting,

13 

despite economic hardship of doing so). SEARK does not specifically address this issue in its
current motion.
At the second hearing, Dr. Flowers suggested that the mere fact that his participation in
the hospice program is voluntary does not make the challenged regulations fair. Dr. Flowers’s
arguments of unfairness do not establish compulsion. As stated above, the only compulsion to
provide hospice services is imposed by virtue of SEARK’s voluntary choice to provide services
under the hospice program. The Court finds that SEARK has failed to establish that it is likely to
succeed on the merits of its Fifth Amendment challenge.
The Secretary notes that, as part of its Fifth Amendment claim, SEARK briefly alleges in
its amended complaint that 42 C.F.R. § 418.26 is arbitrary and capricious (Dkt. No. 26, ¶ 38)
(“The regulation at issue, 42 C.F.R. § 418.26, is arbitrary and capricious and the demand for
repayment to the regulation constitutes an unlawful Fifth Amendment taking.”). The Secretary
argues that this vague allegation fails to satisfy the two-step process for challenging agency
construction of a statute established by Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837, 842 (1984). SEARK has not addressed this issue in its pleadings or at the hearing.
Indeed, at the recent hearing, SEARK only mentioned its Fifth Amendment claim and
unconscionable contract claim. In other words, in this Court’s view, based on the record before
it, SEARK has made no attempt to advance a separate claim that 42 C.F.R. § 418.26 is an
arbitrary and capricious regulation.
SEARK also alleges that its provider agreement with the government constitutes an
unconscionable contract. SEARK’s current motion makes no new arguments on this issue.
SEARK previously argued that the provider agreement is an unconscionable contract because it
requires SEARK to comply with the challenged regulations. SEARK also argued that it lacked

14 

any bargaining power in the transaction and, therefore, the contract is one of adhesion. The
Secretary argued that the provider agreement is a statutory entitlement and not a contract. The
Secretary also contended that there is no evidence that any surprise or deceptive bargaining
practices were present in the formation of the provider agreement. The Secretary repeats those
arguments now. The Court previously ruled that SEARK failed to make a sufficient showing
that it is likely to succeed on its unconscionable contract claim because the weight of authority
suggests that the provider agreement is not a contract and because SEARK has not presented
evidence to support a finding that the agreement is unconscionable. The Court stands by that
ruling.
Absent “some clear indication that the legislature intends to bind itself contractually, the
presumption is that a law is not intended to create private contractual or vested rights but merely
declares a policy to be pursued until the legislature shall ordain otherwise.”

Nat’l R.R.

Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66 (1985) (internal
quotation marks omitted). The party asserting the creation of a contract must overcome this
well-founded presumption. Id. at 466. The language and circumstances of the statute must
evince a clear intent by the legislature to create contractual rights so as to bind the state. Koster
v. City of Davenport, Iowa, 183 F.3d 762, 766 (8th Cir. 1999). The Secretary has cited several
cases in this area as to Medicare provider agreements, all of which support the Secretary’s
position that the agreement with SEARK is not a contract. See Mem’l Hosp. v. Heckler, 706
F.2d 1130, 1136 (11th Cir. 1983) (“Upon joining the Medicare program, however, the hospitals
received a statutory entitlement, not a contractual right.”); U.S. ex rel. Roberts v. Aging Care
Home Health, Inc., 474 F. Supp. 2d 810, 820 (W.D. La. 2007) (“Medicare Provider Agreements
create statutory, not contractual, rights.”); Greater Dallas Home Care Alliance v. United States,

15 

10 F. Supp. 2d 638, 647 (N.D. Tex. 1998) (“[T]he right to receive payments under the Medicare
Act is a manifestation of Government policy and, as such, is a statutory rather than a contractual
right.”). SEARK has not cited any legal authority in support of its argument on this issue or
made any argument to overcome the presumption that the law at issue was not intended to create
a contract.
Even assuming SEARK could show contractual rights were created by the agreement,
SEARK has not presented evidence to support a finding that the agreement is unconscionable.
SEARK’s substantive unconscionability argument falls back on its arguments under the Takings
Clause of the Fifth Amendment. As to procedural unconscionability, at both hearings, SEARK
simply presented testimony that Dr. Flowers, its Chief Executive Officer, did not appreciate the
full implications of its agreement to abide by existing regulations.
For these reasons and those stated in the Court’s prior Opinion and Order, the Court finds
that SEARK has not made the requisite showing that it is likely to succeed on the merits,
regardless if this Court applies the “fair chance of succeeding on the merits” or the heightened
“likely to prevail on the merits” standard.
To the extent SEARK basis its second request for preliminary injunctive relief on an
alleged due process violation separate from its Fifth Amendment claim, due process is not a basis
on which SEARK seeks relief in its amended complaint (Dkt. No. 26). When raising due
process in its motion, SEARK does not specify whether it contends substantive or procedural due
process might be at issue, and these two theories are different. The elements of a substantive due
process claim are that the defendant violated a fundamental constitutional right of the plaintiff
and that the alleged violation shocks the contemporary conscience.

C.N. Willmar Public

Schools, Indep. School Dist. No. 347, 591 F.3d 624, 634 (8th Cir. 2010). This is a high standard.

16 

Id.

“[T[he theory of substantive due process is properly reserved for truly egregious and

extraordinary cases.” Myers v. Scott Cnty, 868 F.2d 1017, 1019 (8th Cir. 1989). If SEARK
means to assert a substantive due process claim, it is not likely to succeed on the merits.
The elements of a procedural due process claim are that the plaintiff had a life, liberty, or
property interest protected by the due process clause of the Fourteenth Amendment, that the
plaintiff was deprived of that interest within the meaning of the due process clause, and that the
state did not afford the plaintiff adequate procedural rights before depriving him of that interest.
Vaughn v. Ruoff, 304 F.3d 793, 796 (8th Cir. 2002) (citing Hahn v. Star Bank, 190 F.3d 708, 716
(6th Cir. 1999)). If SEARK means to assert a procedural due process claim, the record to support
such a claim has not been developed, and the Court determines that SEARK is not likely to
succeed on the merits of such a claim.
The Court previously ruled that, even if this Court were to find in SEARK’s favor on the
other three Dataphase factors, those findings would not be sufficient for SEARK to prevail.
That ruling remains. As to the three other Dataphase factors, SEARK previously presented
testimony that it likely cannot survive as a going concern if the demands for repayment are not
enjoined. At the second hearing, Dr. Flowers testified that, as a result of the withheld payments,
he is in the process of closing the Pine Bluff facility, while he is unsure of the Helena facility’s
status. As a general rule, economic loss does not constitute irreparable harm. See Sampson v.
Murray, 415 U.S. 61, 90 (1974). However, the potential for irreparable harm is present “when
the potential economic loss is so great as to threaten the existence of the moving party’s
business.” Fort Smith Beepers, Inc. v. Mobilefone Serv., Inc., 533 F. Supp. 685, 688-89 (W.D.
Ark. 1981) (quoting Paschall v. Kansas City Star Co., 441 F.Supp. 349, 357 (W.D. Mo. 1977));
see also Ryko Mfg. Corp. v. Delta Servs., Inc., 625 F. Supp. 1247, 1248 (S.D. Iowa 1985) (“Yet,

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irreparable injury has been characterized as loss of a movant’s enterprise.”); Doran v. Salem Inn,
Inc., 422 U.S. 922, 932 (1975) (stating that threat of a substantial loss that would result in
bankruptcy meets the standard for irreparable harm). In addition, the threat of this harm to
SEARK outweighs the injury that enjoining the demands for repayment would inflict on the
Secretary or other interested parties. Likewise, public interest appears to favor the preliminary
injunction against the demands for repayment that SEARK claims threaten its ability to continue
to provide hospice care to several patients in a rural area. SEARK’s showing on these factors
cannot overcome its failure to make the requisite threshold showing of likelihood of success on
the merits, however. Therefore, SEARK’s request for a temporary restraining order must be
denied.
*

*

*

For these reasons, SEARK’s second application for a temporary restraining order is
denied (Dkt. No. 27).
SO ORDERED this the 11th day of June, 2014.

______________________________
Kristine G. Baker
United States District Judge

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