Blossom South, LLC v. Kathleen Sebelius et al
-CLERK TO FOLLOW UP-ORDER that the motions to dismiss filed by defendants Nira V Shah, MD #23 and Kathleen Sibelius and Marilyn Tavenner #24 are granted, and the complaint is dismissed. Plaintiff's motions for an expedited hearing #11 and for an extension of time to file papers on its motion for a preliminary injunction #19 are denied as moot. Signed by Hon. David G. Larimer on 12/17/13. (EMA)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
BLOSSOM SOUTH, LLC
DECISION AND ORDER
as Secretary of the United States Department
of Health and Human Services,
as Administrator of the Centers for Medicare and
NIRAV SHAH, M.D.,
as Commissioner of Health of the
State of New York,
Plaintiff Blossom South, LLC (“Blossom South”) commenced this action against Kathleen
Sebelius, as Secretary of the United States Department of Health and Human Services (“Secretary”),
Marilyn Tavenner, as Administrator of the Centers for Medicare & Medicaid Services (“CMS”), and
Nirav Shah, M.D., as Commissioner of Health of the State of New York. Plaintiff asserts claims
under the Social Security Act, 42 U.S.C. § 301, et seq., the Medicare Act, 42 U.S.C. § 1395 et seq.,
and other statutes, seeking to enjoin defendants from terminating Blossom South’s Medicare and
Medicaid provider agreement without a pretermination hearing and other administrative review
On August 13, 2013, this Court issued a Decision and Order, 2013 WL 4679275, familiarity
with which is assumed, granting plaintiff’s motion for a preliminary injunction and enjoining
defendants from terminating plaintiff’s provider agreement or taking steps toward that end, pending
further order of this Court. On November 4, 2013, the Court heard oral argument on defendants’
motions to dismiss the complaint (Dkt. #23, #24). The following constitutes the Court’s decision
on those motions.1
According to the complaint, the factual allegations of which are accepted as true, Blossom
South is a limited liability company that operates a skilled nursing facility on Monroe Avenue in
Rochester, New York. Blossom South participates in Medicare, which is a federally funded and
administered health insurance program for the eligible elderly and disabled established by title XVIII
of the Social Security Act. Under Medicare Part A, qualified providers of health services can receive
reimbursement from the government for their provision of health services to Medicare-qualified
patients. See Palomar Medical Center v. Sebelius, 693 F.3d 1151, 1155 (9th Cir. 2012).2
To qualify for payments under the program, a facility must meet certain requirements under
federal law. See Golden Living Center-Frankfort v. Secretary Of Health And Human Services, 656
F.3d 421, 424 (6th Cir. 2011). Compliance with those requirements is typically assessed by state
agencies acting under contract with the federal government. Id. at 425.
Instances of noncompliance, or “deficiencies,” are ranked according to their severity, ranging
from “[n]o actual harm with a potential for minimum harm,” to “immediate jeopardy to resident
Defendant Shah’s motion largely adopts the arguments made in the federal defendants’
motion. See Dkt. #23-2 at 6-7. Since the Court bases its decision on the grounds asserted by the
federal defendants, I find it unnecessary to separately address defendant Shah’s motion.
Medicaid is a health care program jointly funded by federal and state sources that
provides health insurance and nursing home coverage to low-income individuals. See United
States v. McGovern, 329 F.3d 247, 248 (1st Cir. 2003). Both “[t]he Medicare and Medicaid Acts
impose common certification and quality of care requirements on nursing facilities,” however, so
for the sake of convenience the Court will generally refer only to Medicare in this Decision and
Order. Beechwood Restorative Care Center v. Thompson, 494 F.Supp.2d 181, 195 n.9
(W.D.N.Y. 2007) (quoting Cathedral Rock of North College Hill, Inc. v. Shalala, 223 F.3d 354,
366 (6th Cir. 2000)).
health or safety.” 42 C.F.R. § 488.404(b). Deficiencies are given letter ratings, which increase in
severity from A through L.
Depending on the severity of the deficiencies, the Secretary may impose various penalties
and remedies. 42 C.F.R. § 488.408. If the deficiencies are severe enough, the facility may be
terminated from the Medicare program. See Shalala v. Illinois Council on Long Term Care, Inc.,
529 U.S. 1, 6-7 (2000); Fox Ins. Co., Inc. v. C.M.S., 715 F.3d 1211, 1214-15 (9th Cir. 2013);
Ridgeview Manor of Midlands, L.P. v. Leavitt, No. 07 CV 861, 2007 WL 1068224, at *2 (D.S.C.
Mar. 30, 2007).
The New York State Department of Health (“DOH”) is the state agency responsible for
surveying skilled nursing facilities in New York that participate in Medicare. In March 2011, DOH
designated Blossom South as a “special focus facility” (“SFF”), indicating that Blossom South had
a track record of substandard quality of care. SFFs are subject to closer scrutiny than non-SFFs, and
in particular, more frequent surveys. See THI of Kansas at Highland Park, LLC v. Sebelius, No. 132360, 2013 WL 4047570, at *3 (D.Kan. Aug. 9, 2013). If problems persist at the facility and are not
corrected, the facility’s participation in the Medicare and Medicaid programs may be terminated.
Id. If the problems are sufficiently addressed and abated, the facility may “graduate” from the
program, i.e., its SFF designation will be removed.
DOH’s May 31, 2011 letter to Blossom South stated that its placement on SFF status was
based on the prior three years of survey results. Dkt. #24-4 at 27. Apparently this included some
seventy-one citations between December 2009 and March 2011. Def. Ex. 6. Four of those citations
included “immediate jeopardy” findings involving actual harm to residents. Id.3
Blossom South had also been placed once before on SFF status, in 2005, and
“graduated” in 2007. Def. Ex. 6.
DOH also stated that as a result of the SFF designation, DOH would conduct two standard
surveys at Blossom South each year, as well as periodic onsite monitoring visits. The letter advised
Blossom South that it would be “expected to achieve significant improvement in compliance with
federal and state regulations during the next 24 months,” and that “[a]fter 24 months and four
standard surveys following designation, failure to achieve significant progress will result in notice
of termination from the Medicare and Medicaid Programs.” Id.4
Over the ensuing twenty-seven months, Blossom South received eighty-six citations.5 Def.
Ex. 6. Plaintiff contends that a close examination of the record shows a pronounced trend toward
significant improvement, with a particular drop in the number of more serious deficiencies.
Nevertheless, on August 14, 2013, DOH issued a statement identifying eighteen deficiencies, of
various levels of severity, and advising plaintiff that DOH was recommending to CMS that Blossom
South’s Medicare provider agreement be terminated. CMS issued a notice of termination on August
15, 2013, stating that Blossom South’s provider agreement would be terminated on September 14,
2013, and directing Blossom South to submit a closure plan within seven days.6
Both sides here have submitted copies of correspondence and other documents relating
to these events. Since the complaint refers to those documents, the authenticity of which is not
disputed, and is based on the events that they memorialize, the Court may consider them on a
motion to dismiss. Sira v. Morton, 380 F.3d 57, 67 (2d Cir. 2004); Rivera v. Lempke, 810
F.Supp.2d 572, 575 n.2 (W.D.N.Y. 2011); Nieves v. County of Monroe, 761 F.Supp.2d 48, 51
(W.D.N.Y. 2011). See also Freeman v. Town of Hudson, 714 F.3d 29, 36 (1st Cir. 2013) (“some
extrinsic documents may be considered without converting a motion to dismiss into a motion for
summary judgment,” including “‘documents the authenticity of which are not disputed by the
parties; ... official public records; ... documents central to plaintiffs’ claim; [and] ... documents
sufficiently referred to in the complaint’” (quoting Watterson v. Page, 987 F.2d 1, 3 (1st Cir.
The discrepancy between this 27-month period and the 24-month period referred to in
DOH’s initial letter to Blossom South appears to be attributable to some discussions between the
parties toward the end of the 24-month period and to ordinary procedural delays. In any event,
that discrepancy has no bearing on the merits of this case.
While the parties differ in their characterization of the severity of the problems at
Blossom South, plaintiff’s claims in this case do not rest on the correctness of the deficiency
On August 20, Blossom South requested an expedited hearing before an administrative law
judge (“ALJ”) of the Department of Health and Human Services Departmental Appeals Board.
According to plaintiff, such a hearing would generally not take place before Blossom South’s
Medicare provider agreement was terminated.
Blossom South received a letter from CMS on August 27, stating that Blossom South would
not be given an opportunity to correct the deficiencies identified in DOH’s August 8 survey, that
Blossom South would not be allowed to pursue informal dispute resolution, and that Blossom
South’s provider agreement would be terminated on September 15.
Blossom South commenced this action the same day that it received that letter, August 27,
2013. Plaintiff alleges that 98% of its gross revenue comes from participation in the Medicare and
Medicaid programs, and that absent court intervention, it will be effectively shut down before its
administrative appeal is heard.
The complaint asserts four claims for relief: (1) for a judgment declaring that defendants
have violated Blossom South’s procedural due process rights under the United States Constitution,
on the ground that Blossom South has been denied notice and a meaningful opportunity to be heard
prior to the termination of its provider agreement, Dkt. #7 ¶¶ 47-51; (2) for similar relief, on the
ground that Blossom South has been denied meaningful notice of the requirements for termination
of its provider agreement, specifically what is required to “graduate” from the SFF program, id. ¶¶
52-60; (3) for a declaration that the Secretary has exceeded her congressionally-granted authority by
adopting regulations permitting the termination of a facility’s provider agreement absent a finding
of immediate jeopardy, id. ¶¶ 61-69; and (4) for a declaratory judgment that the manner in which
findings or the wisdom of plaintiff’s termination. Whether the conditions at Blossom South were
relatively good or bad, then, is ultimately not before me.
CMS adopted the SFF program violated the Administrative Procedure Act (“APA”), specifically 5
U.S.C. § 553, which deals with rulemaking procedures, id. ¶¶ 70-78.
Along with the complaint, plaintiff also filed a motion for a preliminary injunction, seeking
to preserve the status quo at least until Blossom South’s administrative appeal is heard. As stated,
the Court granted that motion on August 30. The Court has since extended the terms of that
injunction, pending further order of the Court. Dkt. #33.
The Secretary and CMS (“federal defendants”) and DOH have separately moved to dismiss
the complaint. The federal defendants contend that this Court lacks subject matter jurisdiction, and
that plaintiff’s claims are substantively meritless. DOH makes similar arguments, and also contends
that there are no allegations here of any violations of federal law by DOH.
While those motions were pending, counsel for the federal defendants informed the Court
that on November 27, 2013, the ALJ hearing plaintiff’s administrative appeal issued a decision
upholding all the findings contained in the August 2013 statement of deficiencies, and sustaining
CMS’s termination decision. Dkt. #34. According to the decision of the ALJ, some cited
deficiencies (each of which warranted a finding of noncompliance) in the areas of professional
standards, accident prevention, housekeeping, pest control, resident rights and drug records were not
addressed or challenged by Blossom South (Dkt. #34, p. 7).
I. Subject Matter Jurisdiction: General Principles
Since “subject matter jurisdiction is a ‘threshold question that must be resolved ... before
proceeding to the merits,’” Young-Gibson v. Patel, 476 Fed.Appx. 482, 483 (2d Cir. 2012)
(quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 88-89, (1998)), the Court addresses
that issue first. Defendants contend that plaintiff’s claims arise under the Medicare Act, and that
those claims must be administratively exhausted before this Court may exercise jurisdiction over
The Medicare Act (“Act”), 42 U.S.C. §§ 1395-1395ccc (1988), generally requires that
claims “arising under” the Act may not be pursued in federal court until (1) they have been
presented to the Secretary, and (2) the Secretary has issued a “final decision” on the claims. See
42 U.S.C. §§ 405(g), 405(h); Heckler v. Ringer, 466 U.S. 602, 614-15 (1984) (“42 U.S.C. §
405(h), made applicable to the Medicare Act by 42 U.S.C. § 1395ii, provides that § 405(g), to the
exclusion of 28 U.S.C. § 1331, is the sole avenue for judicial review for all ‘claim[s] arising
under’ the Medicare Act”) (footnote omitted). “A ‘final decision’ is rendered only after the
individual has “pressed his claim” through all levels of administrative review.” Do Sung Uhm v.
Humana, Inc., 620 F.3d 1134, 1140 (9th Cir. 2010) (citing Heckler, 466 U.S. at 605). The
exhaustion rule is sometimes referred to as the “channeling requirement,” in the sense that all
claims must first be channeled through the agency before they can be brought before a court.
Presentment of a claim to the agency is a jurisdictional prerequisite to bringing a claim
arising under the Act in federal court. Haro v. Sebelius, 729 F.3d 993, 1007 (9th Cir. 2013). See
Illinois Council, 529 U.S. at 13 (“§ 405(h) ... demands the ‘channeling’ of virtually all legal
attacks through the agency”).
Exhaustion, on the other hand—i.e. the pursuit of a claim through all levels of
administrative review–is a waivable, non-jurisdictional requirement. See id. at 1005
(“exhaustion is waivable, presentment is not”); Mathews v. Eldridge, 424 U.S. 319, 328 (1976)
(“The waivable element is the requirement that the administrative remedies prescribed by the
Secretary be exhausted. The nonwaivable element is the requirement that a claim for benefits
shall have been presented to the Secretary”); Escalera v. Commissioner of Social Sec., 457
Fed.Appx. 4, 5 n.1 (2d Cir. 2011) (“the failure to exhaust is a waivable (i.e., non-jurisdictional)
requirement under Section 405(g)”).
There are, however, two significant exceptions to these requirements. The first of these is
commonly known as the Michigan Academy exception, since it was first articulated in Bowen v.
Michigan Academy of Family Physicians, 476 U.S. 667 (1986). As more recently restated in
Illinois Council, 529 U.S. 1, this exception provides that the channeling requirement of § 405(h)
does not bar federal question jurisdiction “where application of § 405(h) would not simply
channel review through the agency, but would mean no review at all.” Binder & Binder PC v.
Barnhart, 481 F.3d 141, 149 (2d Cir. 2007) (quoting Illinois Council, 529 U.S. at 19).
The second exception is for claims that are “entirely collateral” to a substantive claim
under the Act. Mathews v. Eldridge, 424 U.S. 319 (1976). In Eldridge, the Supreme Court held
that the Secretary’s denial of an individual’s request for benefits should be deemed a “final
decision” for the purpose of § 405(g), even though the plaintiff had not fully exhausted the
Secretary’s administrative procedures, because the plaintiff’s claim that a pre-deprivation hearing
is constitutionally required was “entirely collateral” to his substantive claim of entitlement and
because he made a colorable claim that full relief would not be possible if he were awarded
retroactive benefits through a post-deprivation hearing.7
Under Eldridge, then, a plaintiff is excused from the exhaustion requirement if (1) the
plaintiff’s constitutional challenge is entirely collateral to his substantive claim of entitlement;
and (2) the plaintiff “has raised at least a colorable claim that ... an erroneous termination would
damage him in a way not recompensable through retroactive payments,” such that “full relief
Strictly speaking, Eldridge did not create an “exception” to the exhaustion requirement,
but rather explained the circumstances under which that requirement should be waived, or
deemed satisfied. THI, 2013 WL 4047570, at *7; GOS Operator, LLC v. Sebelius, 843
F.Supp.2d 1218, 1229 (S.D.Ala. 2012). The principles set forth in Eldridge are commonly
referred to as an “exception” to the general rule of exhaustion, however, and for the sake of
conveniece the Court will use that term here.
cannot be obtained at a postdeprivation hearing.” 424 U.S. at 330-31. The Eldridge decision
rests on “the core principle that statutorily created finality requirements should, if possible, be
construed so as not to cause crucial collateral claims to be lost and potentially irreparable injuries
to be suffered ... .” Id. at 331 n.11.
II. Application of Eldridge to the Case at Bar
The complaint here states that plaintiff’s claims arise under the Medicare Act, as well as
under other federal statutes and the United States Constitution. Amended Complaint (Dkt. #7) ¶
2. There is no dispute, then, that in the absence of some exception from, or waiver of the
exhaustion requirement, plaintiff’s claims are not properly before this Court.
In its papers, plaintiff appears to rely principally on the Eldridge “entirely collateral”
exception. Plaintiff contends that its claims in this action are collateral to the claims it is
pursuing administratively, because it is not asking this Court to overturn the Secretary’s
termination decision. Plaintiff states that it is merely seeking declaratory relief, to the effect that
defendants have violated plaintiff’s due process rights, its rights under the Medicare Act, and the
APA, as well as temporary injunctive relief pending the conclusion of its administrative
I find that this Court does have subject matter jurisdiction over plaintiff’s claims, but that
plaintiff’s claims fail on the merits. The complaint must, therefore, be dismissed.
With respect to jurisdiction, plaintiff’s “circumstances appear ideally suited for
application of the ‘entirely collateral’ exception to § 405(g)’s exhaustion requirement.” GOS
Operator, LLC v. Sebelius, 843 F.Supp.2d 1218, 1229 (S.D.Ala. 2012). Blossom South–which
has met the jurisdictional requirement of presenting its claim to the agency–has here brought a
constitutional challenge demanding a pre-termination hearing, which is entirely collateral to any
substantive claim of entitlement to participate in the Medicare program. Id. (citing Eldridge).
See also Cathedral Rock of North College Hill, Inc. v. Shalala, 223 F.3d 354, 364 (“[plaintiff]
Beechknoll’s second argument, that it is entitled to a pre-termination hearing under the Due
Process Clause, involves Beechknoll’s procedural constitutional rights and is ‘entirely collateral’
from its substantive challenge to the Secretary’s termination decision”) (citing Eldridge, 424 U.S.
at 330-32); THI, 2013 WL 4047570, at *8 (D.Kan. Aug. 9, 2013) (“Assuming Plaintiff’s claim in
this case is confined to a due process challenge, seeking injunctive relief on the grounds that it is
entitled to a pre-termination hearing, it is ‘entirely collateral’ from its substantive challenge to the
Secretary’s termination decision”).
Blossom South has also made out a colorable claim that post-termination relief would be
ineffective. Termination of Blossom South’s provider agreement would likely be tantamount to
shutting down the facility; as stated, plaintiff has submitted evidence that 98% of its residents
and gross revenue come from participation in the Medicare and Medicaid programs. See
Iannucci Decl. (Dkt. #8-1) ¶ 24; Segal Reply Decl. (Dkt. #28-5) ¶ 3.8
Some courts–most notably, the Sixth and Seventh Circuits–have held that subject matter
jurisdiction requires the plaintiff to make out a colorable constitutional claim. See Cathedral
Rock, 223 F.3d at 366 (6th Cir. 2000); Northlake Comm. Hosp. v. United States, 654 F.2d 1234,
1241-43 (7th Cir. 1981).
Only once did the Supreme Court in Eldridge use the word “colorable,” however, stating
that the plaintiff in that case had “raised at least a colorable claim that because of his physical
condition and dependency upon the disability benefits, an erroneous termination would damage
him in a way not recompensable through retroactive payments.” 424 U.S. at 331. As recently
stated by Chief Judge William H. Steele of the Southern District of Alabama, “A fair reading of
this language is that what must be ‘colorable’ is the claimant’s showing of irreparable harm,”
rather than the constitutional claim itself. GOS Operator, 843 F.Supp.2d at 1230 and 1231 n.21.
See also Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 213 (1994) (characterizing Eldridge as
holding that § 405(g) “was not intended to bar federal jurisdiction over a due process challenge
that was ‘entirely collateral’ to the denial of benefits ... where the petitioner had made a colorable
showing that full postdeprivation relief could not be obtained”) (emphasis added).
Even if the underlying claim itself must be “colorable,” however, I find that Blossom
South has met that standard. While I conclude that plaintiff’s claim is ultimately meritless, see
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III. Merits of Plaintiff’s Due Process Claims
Nevertheless, plaintiff’s due process claims fail on the merits. Federal courts have held
that a nursing home or similar facility has no constitutional right to a hearing prior to the
termination of its Medicare or Medicaid provider agreement.
For example, in Northlake Comm. Hosp. v. United States, 654 F.2d 1234, 1242 (7th Cir.
1981), the Court of Appeals for the Seventh Circuit held that “Medicare providers ... cannot raise
a colorable constitutional claim of entitlement to a pre-termination hearing.” The court reached
that conclusion after applying the factors set forth in Eldridge (which involved a claim brought
by Medicare disability claimants).
The Sixth Circuit followed the Seventh Circuit’s lead in Cathedral Rock, 223 F.3d 354,
holding that the plaintiff nursing facility was “not entitled to a pre-termination hearing under the
Due Process Clause for the reasons set forth in the Seventh Circuit’s opinion” in Northlake. Id.
at 366 (citing Northlake, 654 F.2d at 1241-43). Essentially, both the Sixth and Seventh Circuits
held that in a case involving a Medicare provider: the private interest at stake is not particularly
strong, since the provider is not the intended beneficiary of the program; the risk of erroneous
infra, I do not believe that it can fairly be described as “immaterial and made solely for the
purpose of obtaining jurisdiction,” or “wholly insubstantial and frivolous.” Ozaltin v. Ozaltin,
708 F.3d 355, 371 n.23 (2d Cir. 2013) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 513 n.10
(2006)). See GOS Operator, 843 F.Supp.2d at 1231 n.21 (“[n]otwithstanding the Court’s
determination ... that GOS’s claims do not have a substantial likelihood of success on the merits,
they appear to satisfy by a comfortable margin the minimal threshold of being ‘colorable’ ... for
purposes of the ‘entirely collateral’ analysis under Eldridge); see also Cassim v. Bowen, 824 F.2d
791, 794-95 (9th Cir. 1987) (stating that physician who brought due process challenge to denial of
full hearing prior to his suspension from Medicare program “raises a serious constitutional
challenge. It is not insubstantial, immaterial, or frivolous,” but going on to affirm denial of
preliminary injunction on ground that plaintiff had failed to demonstrate probability of success
on the merits).
In any event, my conclusion in this regard has no effect on my ultimate decision on
whether to grant the motions to dismiss. Regardless of whether this Court has subject matter
jurisdiction over plaintiff’s claims, I conclude that those claims must be dismissed.
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deprivation is “quite manageable,” due to the procedural safeguards in place, particularly the
extensive documentaton requirements; and the government has a strong interest in “expeditious
provider termination procedures ... .” Northlake, 654 F.2d at 1242; accord Cathedral Rock, 223
F.3d at 365.
Other federal courts addressing this issue have reached similar conclusions. See, e.g.,
Geriatrics, Inc. v. Harris, 640 F.2d 262, 265 (10th Cir. 1981) (“a pre-termination hearing is not
required as to the plaintiff Home”); GOS Operator, 843 F.Supp.2d at 1233 (“the overwhelming
majority of authorities (including all or virtually all appellate decisions) to have addressed the
issue have concluded that Medicare providers enjoy no constitutional right to a pre-termination
hearing”); THI, 2013 WL 4047570, at *8 (same); see also Case v. Weinberger, 523 F.3d 602,
606-08 (2d Cir. 1975) (full-blown hearing was not required prior to Secretary’s determination
that nursing home was no longer a “skilled nursing facility”) (pre-Eldridge).
That conclusion applies with particular force in this case, now that plaintiff has in fact
been granted a hearing, and the ALJ has rendered a decision. Blossom South requested a prompt
hearing and it received one. It is true that Blossom South can administratively appeal from that
decision. In other words, the process may not be over. But even if plaintiff could show that it
has some constitutionally protected interest at stake, the Due Process Clause generally requires
only notice and an opportunity to be heard; it does not mandate either the availability or
completion of any appeals before the deprivation of a protected interest. See, e.g., Flaim v.
Medical College of Ohio, 418 F.3d 629, 642 (6th Cir. 2005) (“Courts have consistently held that
there is no right to an appeal from an academic disciplinary hearing that satisfies due process”);
Winnick v. Manning, 460 F.2d 545, 549 n.5 (2d Cir. 1972) (“Winnick had no constitutional right
to review or appeal after the disciplinary hearing which satisfied the essential requirements of
due process”); cf. White v. Matthews, 559 F.2d 852, 857 (2d Cir. 1977) (existence of a live
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controversy when class-action complaint was filed was sufficient to enable plaintiff’s lawsuit to
proceed as a class action, notwithstanding the named plaintiff’s receipt of a hearing and ALJ
decision after the filing of the complaint).9
In short, then, plaintiff has failed to make out a viable due process claim based on its
assertion that it is entitled to a pretermination hearing. This claim must therefore be dismissed.
Plaintiff’s other due process claim, that it has not been given adequate notice of the
requirements for Blossom South to be removed from, or to avoid termination under the SFF
program, is also meritless. The record here demonstrates that Blossom South was provided with
extensive notice of its alleged deficiencies, the implications of those deficiencies, and the
consequences of failing to correct them. Blossom South has also been advised of the reasons for
defendants’ determination that those problems have not been corrected. I fail to see in what
respect plaintiff was not given adequate notice of what the specific problems were at Blossom
South, or that a failure to correct those problems could result in termination of its provider
agreement. See THI, 2013 WL 4047570, at *9 (finding that nursing home “received considerable
process,” where it had been been subjected to numerous surveys, had submitted several
corrective action plans, and had been “provided with notice at the time it was designated a SFF
that termination of its provider contracts would result if it did not qualify to graduate from the
program or obtain an extension of time to remedy deficiencies”).
I also note that the Secretary has statutory authority to terminate a nursing home’s
provider agreement during the pendency of the administrative process. See GOS Operator, 843
F.Supp.2d at 1237.
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IV. Secretary’s Authority to Terminate Absent a Finding of Immediate Jeopardy
Plaintiff also alleges that the Secretary has exceeded her statutory authority by adopting
regulations providing that a facility’s provider agreement may be terminated absent a finding of
immediate jeopardy. Dkt. #7 ¶¶ 63, 64. This argument has been rejected by other courts, with
The relevant statutes support defendants’ position that “the Secretary has authority to
terminate [a provider’s] participation when one or more conditions of participation are not met,
even without the presence of immediate jeopardy.” Oakwood Community Center ICF/MR v.
Sebelius, 723 F.Supp.2d 937, 940 (E.D.Ky. 2010). In particular, “section 1910 of the Social
Security Act [42 U.S.C. § 1396i] provides the Secretary with authority to terminate [a provider]
when the conditions of participation are not met,” and that statute “says nothing about any need
for immediate jeopardy to be present before termination is allowed.” Id. at 941.
Likewise, the court in GOS Operator held that the Secretary’s regulations permitting
termination in absence of finding of immediate jeopardy “have a reasonable foundation in the
text of the Medicare statute,” particularly 42 U.S.C. § 1395cc(b)(2)(A), which “provides that the
Secretary ‘may refuse to renew or may terminate [a provider] agreement after the Secretary ... has
determined that the provider fails to comply substantially with the provisions of the agreement,
with the provisions of this subchapter and regulations thereunder.’” 843 F.Supp.2d at 1235-36.
See also Athens Healthcare, Inc. v. Sebelius, No. 3:13-1443, 2013 WL 2403578, at *6 (M.D.Pa.
May 31, 2013) (“[B]y statute, CMS has the discretionary authority to terminate a Medicare
provider agreement where it finds that a facility is out of substantial compliance with the federal
participation requirements for nursing homes in the Medicare and/or Medicaid programs. This
discretion is not limited to cases in which immediate jeopardy is present”) (citing 42 U.S.C. §
1395cc(b)(2)(A); 42 C.F.R. § 488.456(b)(1)(I)); Vencor Nursing Centers, L.P. v. Shalala, 63
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F.Supp.2d 1, 9 (D.D.C. 1999) (“There is no indication in the legislative history that Congress
wished to limit HHS’s ability to terminate a persistently noncompliant facility”); 42 U.S.C. §
1395i-3(h)(2)(A) (“Nothing in this subparagraph shall be construed as restricting the remedies
available to the Secretary to remedy a skilled nursing facility’s deficiencies”).
I agree with these decisions and conclude that the Secretary acted within her authority in
adopting regulations permitting termination of a provider’s Medicare agreement even absent a
finding of immediate jeopardy. This claim is therefore dismissed as well.
V. Claim under the Administrative Procedure Act
Plaintiff’s final claim is that in adopting the SFF program, CMS did not provide notice of
the program, or provide interested persons an opportunity to comment, and that CMS thereby
violated the APA, 5 U.S.C. § 553. Section 553 generally requires that an agency publish notice
of proposed rule making, and “give interested persons an opportunity to participate in the rule
making through submission of written data, views, or arguments ... .” 5 U.S.C. § 553(b), (c).
Under the APA, “[i]n most instances, agency ‘rule[s]’ must be subjected to a notice and
comment period before taking effect.” New York State Elec. & Gas Corp. v. Saranac Power
Partners, L.P., 267 F.3d 128, 131 (2d Cir. 2001) (quoting Zhang v. Slattery, 55 F.3d 732, 744
(2d Cir. 1995) (other citations omitted). “The APA’s notice-and-comment requirements apply
only to ‘substantive,’ what are sometimes termed ‘legislative,’ rules, not to, inter alia, ‘rules of
agency organization, procedure, or practice.’” Time Warner Cable Inc. v. F.C.C., 729 F.3d 137,
168 (2d Cir. 2013) (quoting Lincoln v. Vigil, 508 U.S. 182, 196 (1993)).
“Because all procedural rules affect substantive rights to some extent, the distinction
between substantive and procedural rules” is not always obvious, but rather is often “one of
degree ... .” Time Warner, 729 F.3d at 168 (quoting Electronic Privacy Info. Ctr. v. United
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States Dep’t of Homeland Sec., 653 F.3d 1, 5-6 (D.C. Cir. 2011) (internal quotation marks
omitted). See also American Hosp. Ass’n v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 1987) (“the
spectrum between a clearly interpretive rule and a clearly substantive one is a hazy continuum”).
Simply put, “[s]ubstantive rules create new law, rights, or duties, in what amounts to a legislative
act,” whereas a procedural rule “does not itself alter the rights or interests of parties, although it
may alter the manner in which the parties present themselves or their viewpoints to the agency. ...
Put another way, a procedural rule does not impose new substantive burdens.” Time Warner, 729
F.3d at 168 (internal quotes and citations omitted). Ultimately, the question is whether “the
substantive effect is sufficiently grave” to warrant requiring notice and comment, in order to
further the APA’s purpose of permitting public participation in agency decisionmaking and
ensuring that an agency has all pertinent information before it when it makes a decision. Id.
(quoting Electronic Privacy Info. Ctr., 653 F.3d at 6).
In my view, the adoption of the SFF program did not amount to “substantive” or
“legislative” rulemaking. The underlying substantive rules governing the requirements for
nursing homes’ participation in the Medicare and Medicaid programs were enacted, with notice
and public comment, in 1994. See 59 Fed. Reg. 56116 (Nov. 10, 1994). The CMS documents
establishing the SFF program (which dates back to 1998, which has been modified since, and
which was codified by Congress in 2010, see 42 U.S.C. § 1395i-3(f)(8)), essentially amount to a
plan for enforcing the existing, properly enacted statutory and regulatory regime. See Los
Coyotes Band of Cahuilla & Cupeno Indians v. Jewell, 729 F.3d 1025, 1039 (9th Cir. 2013)
(agency’s alleged policy was not subject to notice-and-comment requirements of the APA, since
it “merely provide[d] guidance to agency officials in exercising their discretionary powers while
preserving their flexibility and their opportunity to make individualized determinations”)
(internal quotes and alterations omitted).
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The SFF program, then, constitutes no more than a set of procedural rules, rather than
substantive lawmaking. CMS documents relating to the program do not change the substantive
requirements for nursing homes’ participation in Medicare or Medicaid, but simply “direct
more attention to nursing homes with a record of poor survey performance.” Dkt. #24-3 at 21.
Such nursing homes may be subject to heightened scrutiny, but they are not required to meet
more stringent substantive requirements than are other nursing homes.
That is consistent with the stated purpose of the SFF program to deal with “facilities with
a ‘yo-yo’ compliance history,” i.e., facilities that improve enough to pass one survey, only to
backslide and fail the next. Dkt. #24-4. To that end, CMS has directed that SFFs receive two
surveys per year (rather than one, as with non-SFFs), and that within eighteen to twenty-four
months after being designated as an SFF facility, a nursing home will either “graduate” from the
program, receive an extension of time to correct deficiencies, or be terminated. See THI, 2013
WL 4047570, at *3; Dkt. #24-4 at 5-6.
Closer scrutiny by CMS does not amount to new or substantively different obligations on
the part of the subject nursing homes. What is demanded of the nursing home is that it comply
with the Medicare and Medicaid eligibility requirements. That a closer eye may be kept on it
than on facilities without a similarly poor track record does not mean that the SFF program
amounts to legislative rulemaking. There is, then, no basis for plaintiff’s APA claim.
The Court is cognizant of the fact that this decision dismissing plaintiff’s complaint will have
significant and painful consequences. Blossom South’s business will be impacted dramatically and
many residents of the facility with significant physical and psychological problems will be uprooted
and forced to relocate, in many, perhaps most, instances against their will.
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One would think that those who regulate nursing homes, both state and federal, should take
all necessary steps to work with nursing homes to help them succeed. Regulators have many
remedies available for those homes that struggle to be in compliance. Termination of the Medicare
provider agreement is the most drastic and, seemingly, should be the last choice of remedy rather
than the first.
Here, an immediate termination was ordered, apparently with no ability to rectify matters
once that decision had been made. Regulators have much discretion and, therefore, the sensitivity
and the wisdom of the termination decision is not before this Court. The ALJ also made it clear that
she was not ruling on “whether” termination should be the result, just that the Secretary had the
authority to enter such an order.
The law relative to plaintiff’s claims is not favorable to it. Defendants, therefore, have
prevailed but there should be little reason for defendants to rejoice. The result of all this is most
The motions to dismiss filed by defendants Nira V Shah, MD (Dkt. #23) and Kathleen
Sibelius and Marilyn Tavenner (Dkt. #24) are granted, and the complaint is dismissed.
Plaintiff’s motions for an expedited hearing (Dkt. #11) and for an extension of time to file
papers on its motion for a preliminary injunction (Dkt. #19) are denied as moot.
IT IS SO ORDERED.
DAVID G. LARIMER
United States District Judge
Dated: Rochester, New York
December 17, 2013.
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