      RECOMMENDED FOR FULL-TEXT PUBLICATION
           Pursuant to Sixth Circuit Rule 206             2     Ashtabula County Med.                 Nos. 02-3410/3425
   ELECTRONIC CITATION: 2003 FED App. 0452P (6th Cir.)          Ctr. v. Thompson
               File Name: 03a0452p.06
                                                                               _________________
UNITED STATES COURT OF APPEALS                                                      COUNSEL
             FOR THE SIXTH CIRCUIT                        ARGUED:       Anthony A. Yang, UNITED STATES
               _________________                          DEPARTMENT OF JUSTICE, Washington, D.C., for
                                                          Appellant. David M. Levine, BENESCH, FRIEDLANDER,
ASHTABULA COUNTY                  X                       COPLAN & ARONOFF, Cleveland, Ohio, for Appellee.
MEDICAL CENTER ,                   -                      ON BRIEF: Anthony A. Yang, Barbara C. Biddle, UNITED
            Plaintiff-Appellee/ -                         STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
                                   -  Nos. 02-3410/3425   for Appellant.      David M. Levine, BENESCH,
              Cross-Appellant, -                          FRIEDLANDER, COPLAN & ARONOFF, Cleveland, Ohio,
                                    >                     Mark D. Tucker, BENESCH, FRIEDLANDER, COPLAN &
                                   ,
           v.                      -                      ARONOFF, Columbus, Ohio, for Appellee.
                                   -                                           _________________
TOMMY G. THOMPSON,                 -
Secretary of Health and            -                                               OPINION
Human Services,                    -                                           _________________
         Defendant-Appellant/ -
                                   -                         ALAN E. NORRIS, Circuit Judge. Plaintiff Ashtabula
               Cross-Appellee. -
                                                          County Medical Center (“ACMC”), a hospital located in
                                  N                       Ashtabula, Ohio, sought a higher rate of reimbursement for
      Appeal from the United States District Court        the care provided in its skilled nursing facility (“SNF”) than
     for the Northern District of Ohio at Cleveland.      that allowed by the United States Department of Health and
      No. 00-01895—Ann Aldrich, District Judge.           Human Services (“HHS”). ACMC filed suit in federal court
                                                          seeking review of a final decision of the Provider
             Argued: September 18, 2003                   Reimbursement Review Board (“the Board”), which had
                                                          construed the applicable statutes and regulations in a manner
       Decided and Filed: December 19, 2003               adverse to the hospital. The district court held that the
                                                          Secretary’s interpretation of the governing statute and
  Before: BOGGS, Chief Judge; NORRIS and CLAY,            regulations was unreasonable and granted summary judgment
                 Circuit Judges.                          to ACMC. Ashtabula County Med. Ctr. v. Thompson, 191 F.
                                                          Supp. 2d 884 (N.D. Ohio 2002). The Secretary appeals from
                                                          that order and ACMC cross-appeals from the district court’s
                                                          failure to explicitly rule upon its motion for costs and interest.



                           1
Nos. 02-3410/3425                Ashtabula County Med.          3    4      Ashtabula County Med.               Nos. 02-3410/3425
                                      Ctr. v. Thompson                      Ctr. v. Thompson

                                I.                                       1996. When ACMC began operating its SNF, no ACH
                                                                         personnel became ACMC employees or managers. ACH
   This case presents us with a question of statutory                    continued to operate as a distinct entity, without any
construction viewed through the lens of the Administrative               change in its licensure or certification. Furthermore, no
Procedure Act (“APA”), which cautions that agency decisions              ACH residents were transferred to ACMC when ACMC
may only be set aside if they are “arbitrary, capricious, an             began operating the SNF. Rather, all of the admissions
abuse of discretion, or otherwise not in accordance with law”            and residents of ACMC’s distinct part SNF during the
or are “unsupported by substantial evidence . . . or otherwise           first six months of operation had home addresses within
reviewed on the record of an agency hearing provided by                  Health Service Area (“HSA”) # 10, one of the ten regions
statute.” 5 U.S.C. § 706(2)(A), (E).                                     into which Ohio is divided for the purposes of
                                                                         administering the CON program. Both ACH and ACMC
  Because the parties do not contest the facts underlying this           are located within HSA # 10, about seven miles from one
dispute, we will rely upon the district court’s factual recitation       another.
to set the stage:
                                                                            In July 1996, ACMC submitted a request for an
  . . . Both parties stipulated to the relevant facts in a               exemption under the new provider provision from the
  hearing before the Board, and the Court agrees with the                routine cost limits (“RCLs”) applicable under the
  parties that there is no dispute as to any material factual            Medicare statutes. The new provider provision is an
  issues. ACMC is a hospital located in Ashtabula, Ohio.                 exemption from the statutory caps placed on Medicare
  In May, 1995, ACMC entered into an “Agreement for                      reimbursement for health care providers, who, under the
  Purchase of the Right to Operate Nursing Home Beds”                    Medicare program, are generally reimbursed up to the
  with the County Commissioners of Ashtabula County,                     statutory limit for their reasonable costs in providing
  the owners of the Ashtabula County Home (“ACH”),                       necessary health care services. On July 25, 1996, the
  under which ACMC acquired the right, title, and interest               Health Care Financing Administration (“HCFA”) [since
  to fifteen of ACH’s 310 beds at a price of $7500 per bed.              renamed “The Centers for Medicare and Medicaid
  ACMC and ACH are separate and unrelated health care                    Services”] denied the request. ACMC appealed to the
  institutions, and ACMC acquired no other assets from                   PRRB [the Board], which affirmed HCFA’s decision.
  ACH. Under Ohio law, which has imposed a                               The Board’s opinion became the final decision of the
  moratorium on nursing facility beds in the state of Ohio,              Secretary pursuant to 42 U.S.C. § 1395oo(f)(1). ACMC
  ACMC was required to purchase existing beds from                       now seeks judicial review of the PRRB’s determination
  another provider and apply for a certificate of need                   that ACMC does not qualify for a new provider
  (“CON”) before commencing operations. It applied in                    exemption to the RCLs.
  June 1995 for a CON granting it authority to acquire,
  relocate, and place into service fifteen long-term care            191 F. Supp. 2d at 886-87 (footnotes omitted).
  beds on its premises, and the application was granted in
  October 1995. ACMC, which had not operated as a                      The Social Security Act, which established the Medicare
  nursing facility or a skilled nursing facility (“SNF”)             program, provides payment to qualified hospitals and SNFs
  previously, became Medicare-certified on March 27,                 (nursing homes) in return for the services that they provide to
Nos. 02-3410/3425                Ashtabula County Med.         5    6      Ashtabula County Med.                Nos. 02-3410/3425
                                      Ctr. v. Thompson                     Ctr. v. Thompson

older and disabled citizens. For the relevant period, the           § 2533.1, at 25-12.1C2 (1997). The disputed regulation,
Medicare program restricted payments to SNFs to an amount           which has since been amended, defined a “new provider” in
equal to the lesser of the “reasonable cost” of or the              these terms:
customary charge for its services:
                                                                        A new provider is a provider of inpatient services that
  The reasonable cost of any services shall be the cost                 has operated as the type of provider (or the equivalent)
  actually incurred, excluding therefrom any part of                    for which it is certified for Medicare, under present and
  incurred cost found to be unnecessary in the efficient                previous ownership, for less than three full years. An
  delivery of needed health services, and shall be                      exemption granted under this paragraph expires at the
  determined in accordance with regulations establishing                end of the provider’s first cost reporting period beginning
  the method or methods to be used, and the items to be                 at least two years after the provider accepts its first
  included, in determining such costs for various types or              patient.
  classes of institutions, agencies, and services . . . .
                                                                    42 C.F.R. § 413.30(e) (1995). The PRM provides the
42 U.S.C. § 1395x(v)(1)(A). This “reasonable cost”                  following gloss on this exemption:
restriction applies to “routine service costs,” which include
things like a room, board, and nursing care. Whenever a                   Although a complete change in the operation of the
SNF’s routine service costs go over per diem cost limitations,          institution . . . shall affect whether and how long a
they are deemed unreasonable. The manner in which the                   provider shall be considered a “new provider,” changes
applicable routine service cost limits, referred to as “RCLs,”          of the institution’s ownership or geographic location do
are calculated has been adequately summarized elsewhere by              not in itself alter the type of health care furnished and
this court. See St. Francis Health Care Ctr. v. Shalala, 205            shall not be considered in the determination of the length
F.3d 937, 940-41 (6th Cir. 2000).                                       of operation.

  As the passage quoted from the district court’s opinion                 However, for purposes of this provision, a provider
makes clear, the central issue in this appeal is an exception to        which relocates may be granted new provider status
the RCL restrictions, known as “the new provider                        where the normal inpatient population can no longer be
exemption.” As the Provider Reimbursement Manual                        expected to be served at the new location. . . .
(“PRM”)1 explains, “42 C.F.R. § 413.30(e) provides for an
exemption from the SNF routine service cost limits for new          HCFA Pub. 15-1 § 2604.1, at 26-4 (1984).
providers. This provision was implemented to recognize the
difficulties in meeting the applicable cost limits due to              As already mentioned, ACMC purchased the right to
underutilization during the initial years of providing skilled      operate fifteen nursing home beds from ACH in 1995. For its
nursing and/or rehabilitative services[.]” HCFA Pub. 15-1           part, ACH had provided skilled nursing care since 1989.
                                                                    ACMC paid $112,500 to acquire the beds from ACH, which
                                                                    it then relocated to its hospital complex. In the process, it
    1
                                                                    obtained a CON from the State of Ohio, as well as Medicare
      The PR M contains the interpretive rules regarding Medicare   certification.
reimb ursem ent.
Nos. 02-3410/3425                      Ashtabula County Med.               7    8      Ashtabula County Med.                  Nos. 02-3410/3425
                                            Ctr. v. Thompson                           Ctr. v. Thompson

   ACMC sought the new provider exemption described                                 . . . The Court . . . concludes that the term “provider” is
above for its facility. After the HCFA determined that the                          unambiguous and must refer to an institution (or distinct
SNF did not qualify as a new provider, the hospital appealed                        part of an institution), not merely to a characteristic or
to the Board, which affirmed the denial in a decision rendered                      attribute of such an institution. Furthermore, the
on June 29, 2000. In its decision, the Board relied upon the                        statutory definitions and the PRM interpretation effective
factual stipulations recited by the district court. The Board                       during the relevant period indicate that Congress and the
based its denial on the theory that a change of ownership had                       Secretary intended the term provider to refer to an
occurred with respect to the fifteen long term care beds and,                       institution or distinct part thereof and that the Secretary’s
because ACH had operated those beds as part of a                                    new twist on that definition is contrary to “other
participating nursing facility under the Medicare and                               indications of the Secretary’s intent at the time of the
Medicaid programs since 1989, ACMC could not be deemed                              regulation’s promulgation.” Thomas Jefferson Univ.
a new provider.                                                                     Hosp. [v. Shalala], 512 U.S. [504,] 512, 114 S.Ct. 2381.
   ACMC appealed to the district court pursuant to 42 U.S.C.                          Applying the plain meaning of the regulation, the term
§ 1395oo(f). Both parties filed motions for summary                                 provider refers to the institution applying for the
judgment. The district court reversed the Board and granted                         exemption – ACMC’s new distinct part SNF – not
judgment to ACMC.             After substantial preliminary                         merely to its intangible characteristics or attributes – the
discussion, the district court attempted to determine whether                       CON rights purchased from ACH, which allowed it to
the term “provider” as used in the regulation at issue was                          come into existence. Because ACMC’s distinct part SNF
ambiguous.2 The district court viewed the following as the                          did not exist until ACMC purchased the CON rights
crucial question: By purchasing ACH’s CON rights to the                             from ACH, it qualified as a new provider under the
fifteen beds, did ACMC simply take over ownership of an                             provisions of the new provider exemption regulation.
existing provider and thereby undermine its entitlement to                          The Board’s decision was therefore contrary to the plain
“new” provider status, or did ACMC’s establishment of a                             meaning of the regulation.
SNF in a new location, with new personnel, and new patients
constitute the kind of break in operations that entitled it to the              191 F. Supp. 2d at 893.
exemption?
                                                                                  In the alternative, the district court assumed arguendo that
  The district court first determined that the term “provider”                  the term “provider” was ambiguous. If so, then the
as used in the regulation was unambiguous and that the                          Secretary’s position must be affirmed unless it is “arbitrary,
Secretary had erred in applying it:                                             capricious, an abuse of discretion, or otherwise not in
                                                                                accordance with law[.]” 5 U.S.C. § 706(2)(A) (APA). The
                                                                                district court concluded that the Secretary’s interpretation was
                                                                                arbitrary and capricious. 191 F. Supp. 2d at 893-97. Because
    2
       As a reminder, the new provider exemption reads, “A new provider         we agree with the district court that the term was
is a provider of inpatient services that has operated as the type of provider   unambiguous, we need not reach its alternative holding.
(or the equivalent) for which it is certified for Medicare, under present
and previous ownership, for less than three full years.” 42 C.F.R.
§ 413.30 (e) (1995).
Nos. 02-3410/3425               Ashtabula County Med.          9   10   Ashtabula County Med.                 Nos. 02-3410/3425
                                     Ctr. v. Thompson                   Ctr. v. Thompson

  After entry of judgment, ACMC filed a motion for costs            necessary for a SNF to “operate[ ]” – that is, not just
and an award of interest pursuant to 42 U.S.C. § 1395oo(f)(2).      CON rights, but physical beds, employees,
The Secretary responded by moving for a stay. He conceded           administrators, equipment, patients, referral sources, etc.
that the statute provided for the taxing of costs but urged the     Paragon backs this up with a citation to PRM § 2604.1,
court “in the interest of judicial economy” to postpone its         which states that a “new provider is an institution that
ruling on the matter until “any appeal of the judgment . . . has    has operated. . . .” Paragon claims that the use of the
been finally resolved.” The district court granted the stay         word “institution” in the PRM underscores the fact that
without explicitly ruling on the motion for costs and interest.     “provider” in 42 C.F.R. § 413.30(e) refers to the facility
                                                                    as a whole, rather than just CON rights. Thus, only when
                              II.                                   the SNF as an entire operating institution is transferred to
                                                                    a new owner can the exemption for a new provider be
  Deference to the Secretary’s interpretation of the regulation     denied.
only comes into play if its plain language is ambiguous.
Recognizing this fact, the Secretary explains why, in his view,     . . . [W]e conclude that the regulation is ambiguous on
ambiguity calling for interpretation (and deference) exists.        what constitutes a “provider.” Paragon is correct that a
Pointing to Paragon Health Network, Inc. v. Thompson, 251           nursing “provider” is composed of many different
F.3d 1141 (7th Cir. 2001), he contends that the term                attributes, but changing one or more of these
“provider” is ambiguous.                                            characteristics does not mean that the SNF becomes a
                                                                    different “provider.” For example, if a facility fires all its
   Paragon is one of several cases bearing a remarkable             staff and hires a new one, but makes no other changes, an
similarity with the one now before us. Paragon Health               ordinary user of the English language probably would
Network obtained 35 nursing home beds for a new SNF from            consider the SNF with the new staff to be the same
Shores Transitional Care and Rehabilitation Center via              “provider” as it was before. Similarly, a SNF that
Wisconsin’s CON process. As in the instant case, the two            replaced all of its old equipment with new models would
facilities were located in the same health care service area and    still be the same “provider” as it was before the
the only asset transferred between the two facilities “were the     modernization. Even if a SNF both fired its staff and
CON rights; no residents, staff, or equipment were                  replaced all of its equipment, one might still call it the
transferred.” Id. at 1144. With respect to the ambiguity            same “provider” if the administration and physical plant
question, the Seventh Circuit reasoned as follows:                  remained the same. Of course, if all the various things
                                                                    that make up a SNF were new in the sense that they had
  . . . Paragon argues that the regulation has a plain              not been part of another facility, then one would have to
  meaning, which is contradicted by the Secretary’s                 call that SNF a “new provider.” Conversely, if a nursing
  interpretation. Paragon focuses on the phrase “provider           facility did not change any of its aspects, it would
  of inpatient services that has operated” in the regulation        unquestionably continue to be the same provider rather
  and its relation to “present and previous ownership.”             than a new one. The difficulty in drawing a line between
  According to the appellant, the question of ownership             these two extremes is what makes the word “provider”
  must be decided with respect to the “provider” as a               ambiguous as used in the regulation.
  whole. A “provider” consists of all those attributes
Nos. 02-3410/3425                Ashtabula County Med.        11    12    Ashtabula County Med.                 Nos. 02-3410/3425
                                      Ctr. v. Thompson                    Ctr. v. Thompson

Id. at 1148. The district court considered, and rejected, this      the term “provider” as used in 42 C.F.R. § 413.30(e) refers to
analysis:                                                           a Medicare-certified institution (or Medicare-certified distinct
                                                                    part) that furnishes specified services (here, SNF services).
  This Court respectfully disagrees with the Seventh                In this case, ACMC represents the “provider of inpatient
  Circuit’s analysis. That analysis appears to conflate the         services” contemplated by § 413.30(e).
  questions whether the term “new provider” is ambiguous
  and whether the term “provider” as used in the phrase                The Fourth Circuit has likewise concluded that § 413.30(e)
  “provider of inpatient services” is ambiguous. The                is not ambiguous, and explicitly rejected the reasoning of
  Seventh Circuit’s reasoning actually focuses on the               Paragon. Maryland Gen. Hosp., Inc. v. Thompson, 308 F.3d
  difficulty of drawing the line between the “same                  340 (4th Cir. 2002). In that case, the court confronted a
  ‘provider’” and a “new provider.” This inquiry relates            factual scenario similar to the one before us: Maryland
  more to the ambiguity of the term “new” than the                  General Hospital had purchased nursing home beds from an
  ambiguity of the term “provider.” The regulation is               unrelated entity and established a “distinct part” SNF within
  entirely unambiguous about the meaning of the term                its hospital facility. The Board, which was upheld by the
  “new,” however. Under the plain terms of the regulation,          district court, denied “new provider” status for the reasons
  a “new” provider is one that has existed “under present           urged by the Secretary in the instant case. The Fourth Circuit
  and previous ownership, for less than three full years.”          reversed and concluded that the regulation was unambiguous
  The inquiry should focus instead on the meaning of the            and supported a conclusion “that ‘provider’ as used in section
  term “provider,” which this Court finds to be                     413.30(e) unambiguously refers to the business institution
  unambiguous. Relevant definitions elsewhere in the                providing the skilled nursing services. It therefore follows
  statute and PRM as well as ordinary English usage lead            that the regulation permits consideration of the institution’s
  this Court to conclude that the term provider can only be         past and current ownership, but not the past and current
  understood to refer to an institution or distinct part of an      ownership of a particular asset [i.e., beds] of that institution.”
  institution, not to a mere characteristic or attribute of         Id. at 347. The court provided the following reasoning in
  such an institution. The relevant inquiry is simply               reaching its judgment:
  whether a second, new institution has come into
  existence as a result of the transaction.                           . . . Section 413.30(e) does not define “provider,” but the
                                                                      structure and wording of the regulation suggest that the
Ashtabula County Medical Ctr., 191 F. Supp. 2d at 892-93              provider is the business entity or institution providing the
(footnote omitted).                                                   skilled nursing services. This reading is consistent with
                                                                      the meaning attached to a similar term in another part of
   Although the term “provider” is not defined in § 413.30(e),        the Medicare Act. See 42 U.S.C.A. § 1395x(u) (defining
its meaning is made clear by referencing related statutes: the        “provider of services” as “a hospital, critical access
term “provider of services” includes a “skilled nursing               hospital, skilled nursing facility, comprehensive
facility,” 42 U.S.C. § 1395x(u); “skilled nursing facility,” in       outpatient rehabilitation facility, home health agency,
turn, is “an institution (or a distinct part of an institution),”     [or] hospice program”). This business-entity-specific
that is primarily engaged in providing skilled nursing care to        reading of the regulation is also supported by the
its residents, 42 U.S.C. § 1395i-3(a). Given these definitions,       explanation of the “new provider” exemption contained
Nos. 02-3410/3425               Ashtabula County Med.        13   14       Ashtabula County Med.                  Nos. 02-3410/3425
                                     Ctr. v. Thompson                      Ctr. v. Thompson

  in the version of Medicare’s “Provider Reimbursement            Id. at 346 (emphasis in original).3
  Manual” . . . in effect at the time MGH purchased the
  beds . . . . These repeated references to an “institution”          The fact that a circuit split exists on this question indicates
  indicate that application of the new provider exemption         that it is a very close call and, in one sense, supports the
  depends upon the ownership and operation of the                 Secretary’s contention that the regulation is ambiguous.
  business entity that is providing the skilled nursing           However, we conclude that the language of section 413.30(e)
  services. There is no dispute that neither MGH nor any          has a plain meaning. As the Fourth Circuit held, a “provider”
  previous owner of MGH had provided inpatient skilled            is nothing more than a “business institution that is providing
  nursing services before the Transitional Care Center was        . . . skilled nursing services.” Maryland General, 308 F.3d at
  established. Thus, it would appear that MGH meets the           346. Everything about ACMC’s facility is new except for the
  requirements for a “new provider” as set forth in 42            CON rights. It is housed in a new building and has new
  C.F.R. § 413.30(e).                                             patients, a new staff, and a new corporate identity. The kind
                                                                  of corporate shenanigans feared by the Secretary did not
Id. at 343-44. After distinguishing Paragon, the court            occur here. Rather, ACMC set up a SNF in its hospital. In
suggests the following analysis:                                  order to do so, it purchased a single asset from ACH in the
                                                                  form of a CON for fifteen nursing home beds, just as if it had
     Notwithstanding the absence of a definition of               bought a used x-ray machine or kitchen oven. Such a
  “provider,” we simply cannot conclude that section              purchase does not make ACMC into ACH repackaged.
  413.30(e) is ambiguous. Given the ordinary meaning of           Accordingly, we hold that ACMC is entitled to “new
  the word “provider” and the manner in which it is used          provider” status pursuant to section 413.30(e).
  in the regulation, section 413.30(e) can only be
  understood as focusing on the business institution that is                                       III.
  providing the skilled nursing services. If that institution,
  whether under its current or prior ownership, has                 Having affirmed the judgment of the district court, we turn
  operated as a skilled nursing facility for more than three      to ACMC’s motion for costs and interest filed pursuant to
  years, then it is not entitled to the new provider              42 U.S.C. § 1395oo(f). The costs sought are negligible:
  exemption. If that institution under current or prior           $399.10; interest, which is yet to be determined, will
  ownership has not previously operated as a skilled              presumably be more significant. As mentioned earlier, the
  nursing facility, then it is entitled to the new provider       district court did not explicitly rule on this matter when it
  exemption, even if the institution has purchased some of        granted a stay.
  its assets from skilled nursing facilities that have
  operated for more than three years.



                                                                       3
                                                                       Shortly after the Fourth Circuit reached its conclusion, the First
                                                                  Circuit came out precisely the other way. South Shore Hosp., Inc. v.
                                                                  Thompson, 308 F.3d 9 1 (1st Cir. 2002) (citing Paragon with approval).
Nos. 02-3410/3425              Ashtabula County Med.       15
                                    Ctr. v. Thompson

  While it appears that ACMC is entitled to costs and
interest, we shall remand the matter to permit the district
court to make that determination in the first instance.
                             IV.
  The judgment of the district court is affirmed and the cause
remanded for further proceedings consistent with this
opinion.
