Avon Nursing & Rehab. v. Becerra

667 F.Supp.3d 47

AVON NURSING AND REHABILITATION, et al., Plaintiffs, v. Xavier BECERRA, in his capacity as the Secretary ofthe United States Department of Health and Human Services, Defendant.

No. 18-CV-2390-LTS-SDA

United States District Court, S.D. New York

Signed March 31, 2023

Brian Marc Feldman, Harter, Secrest & Emery, LLP, Rochester, NY, Lauren Renee Mendolera, Harter, Secrest & Emery, LLP, Buffalo, NY, for Plaintiffs Avon Nursing and Rehabilitation, Brightonian Nursing and Rehabilitation, Woodside Manor Nursing and Rehabilitation, The Shore Winds Nursing & Rehabilitation, The Hurlbut Nursing & Rehabilitation, Hornell Gardens Nursing & Rehabilitation, Conesus Lake Nursing & Rehabilitation, Newark Manor Nursing & Rehabilitation, Penfield Place Nursing & Rehabilitation, Hamilton Manor, Latta Road Nursing Home East, Latta Road Nursing Home West, Seneca Nursing & Rehabilitation, Elderwood at Amherst, Elderwood of Lakeside at Brockport, Elderwood at Cheektowaga, Elderwood at Grand Island, Elderwood at Hamburg, Elderwood of Hornell, Elderwood of Uihlein at Lake Placid, Elderwood at Lancaster, Elderwood at Liverpool, Elderwood at Lockport, Elderwood at North Creek, Elderwood at Waverly, Elderwood at Wheatfield, Elderwood at Williamsville, Elderwood at Riverside, Elderwood of Scallop Shell at Wakefield, Westchester Center for Rehabilitation & Nursing, Highfield Gardens Care Center of Great Neck, San Simeon by the Sound, New York Center for Rehabilitation & Nursing, Dry Harbor Nursing Home & Rehabilitation Center.

Brian Marc Feldman, Harter, Secrest & Emery, LLP, Rochester, NY, for Plaintiffs Rego Park Health Care, Queens Boulevard Extended Care Facility, Elderwood at Burlington, Maplewood Nursing Home, Alamo Heights for Clinically Complex Care, Premier Center for Nursing and Rehabilitation, Zion Healthcare Cypress.

Christopher Kendrick Connolly, United States Attorney's Office, New York, NY, for Defendant.

James F. Segroves, Reed Smith LLP, Washington, DC, for Amici American Health Care Association, New York State Health Facilities Association, Inc., Alabama Nursing Home Association, Georgia Health Care Association, Kentucky Association of Health Care Facilities.

MEMORANDUM OPINION AND ORDER

LAURA TAYLOR SWAIN, Chief United States District Judge

Plaintiffs, a group of skilled nursing facilities, bring this action against Defendant Xavier Becerra in his capacity as the Secretary of the United States Department of Health and Human Services ("HHS"), seeking review under the Administrative Procedure Act (5 U.S.C. §§ 701 et seq, ("APA")) of a 2017 rule promulgated by the Centers for Medicare and Medicaid Services ("CMS") division of HHS. See Survey Team Composition, 82 Fed. Reg. 36530, 36623-36625 (Aug. 4, 2017) (the "Final Rule"). The Final Rule would permit certain inspections of nursing facilities to be conducted without the participation of a registered nurse. See id. This case is now before the Court upon remand from a 2021 decision by the Second Circuit (see docket entry no. 64, Avon Nursing & Rehab. v. Becerra, 995 F.3d 305 (2d Cir. 2021)), which reversed and remanded this Court's 2019 Memorandum Opinion and Order dismissing the case for lack of subject matter jurisdiction (docket entry no. 61 ("the Opinion")).

Following the remand, Plaintiffs and Defendant filed cross-motions for summary judgment under Federal Rule of Civil Procedure 56, each arguing that they are entitled to judgment as a matter of law. (Docket entry nos. 89 and 95.) Plaintiffs ask that the Court vacate the Final Rule, whereas Defendant asks that the Court uphold the Final Rule and affirm HHS's interpretation of the statute. The Court has jurisdiction of this action pursuant to 28 U.S.C. section 1331. The Court has considered the parties' submissions carefully and, for the following reasons, grants Defendant's motion.

BACKGROUND

Much of the background of this case was laid out in this Court's prior Opinion; the parties' familiarity with that decision is presumed.¹ Plaintiffs are a group of nursing facilities located in New York and Rhode Island, all of which participate in the Medicaid program.² In order to receive Medicaid funding, nursing facilities must remain in "substantial compliance" with the program's participation requirements. 42 U.S.C. § 1396r(a)(3), § 1396r(h). To evaluate such compliance, facilities are subject to onsite inspections (called "surveys") conducted by state health agencies,³ which aim to "assess [the facilities'] compliance with Federal health, safety, and quality standards." 42 C.F.R. § 488.26(c)(1). These surveys—and the statutes and regulations governing them—are the focus of the parties' dispute in this matter.

The statutory scheme governing surveys is set out in 42 U.S.C. § 1396r(g).⁴ Section 1396r(g) sets out a variety of survey types,⁵ and also describes (inter alia) the timing, content, and frequency of such surveys. Surveys are conducted by a survey team, selected by the state, which is tasked with identifying violations. See 42 C.F.R. § 488.402(b); § 488.10(a). Nursing facilities with poor survey results may be subjected to sanctions (known as "remedies")—ranging from civil monetary penalties, to loss of Medicaid funding, to closure of the facility. See 42 C.F.R. § 488.406. A facility that is dissatisfied with its survey results may contest that determination by appealing to an Administrative Law Judge ("ALJ") (see 42 C.F.R. § 498.5; 42 C.F.R. § 488.408((g)), and the ALJ's decision can subsequently be appealed to the Appellate Division of the Departmental Appeals Board ("DAB") (42 C.F.R. § 498.80).

The dispute now before the Court finds its origins in an administrative proceeding relating to an incident at a nursing home. In August 2013, Plaintiff Avon Nursing and Rehabilitation ("Avon") reported to the New York State Department of Health ("NYSDOH") that a resident had spilled a bowl of soup on her lap during dinner, resulting in a burn. (Opinion at 4.) In response to that report, NYSDOH conducted an "abbreviated standard survey" at Avon's facility, using a survey team composed of two dieticians, neither of whom was a registered nurse. (Id., docket entry no. 76 ¶ 94.) The survey team concluded, and CMS agreed, that Avon was not in substantial compliance with two participation requirements. (Opinion at 4-5.) CMS imposed a civil monetary penalty, which Avon then appealed to an ALJ. (Id. at 5.) In August 2016, the ALJ issued a decision finding that NYSDOH had violated Medicaid requirements⁶ by failing to include a registered nurse on the survey team that inspected Avon's facility, and that the penalty imposed on Avon was consequently invalid. (Id.) CMS appealed the ALJ's decision to the DAB, which held that the composition of the survey team was not a proper basis for invalidation of the penalty, and vacated the ALJ's decision and remanded the matter in November 2017 for further proceedings on the merits. (Id. at 5-6.) The parties eventually settled the administrative proceeding in January 2018. (Id. at 6.)

On May 4, 2017, in response to the ALJ's 2016 decision, HHS published a new proposed rule addressing, among other things, survey team composition. See Survey Team Composition, 82 Fed. Reg. 21014, 21087-21088 (proposed May 4, 2017). The proposed rule sought to relocate certain regulations and to revise definitions and other regulatory language in order to "clarify that the requirement for an interdisciplinary team that must include [a] registered nurse is applicable to surveys conducted under [42 U.S.C. § 1395i-3(g)(2) and 42 U.S.C. § 1396r(g)(2)] of the Act, and not to those surveys conducted to investigate complaints or to monitor compliance on-site under sections [42 U.S.C. § 1395i-3(g)(4) and 42 U.S.C. § 1396r(g)(4)] of the Act." Id. at 21016. In other words, the Final Rule provided that nursing facility compliance surveys conducted pursuant to 42 U.S.C. § 1396r(g)(2) ("Surveys") must be conducted by a team that includes a registered nurse; and that investigative surveys conducted pursuant to 42 U.S.C. § 1396r(g)(4) ("Investigation of complaints and monitoring nursing facility compliance") are not subject to the registered nurse requirement but instead may be conducted by a specialized team that "may" include "appropriate health care professionals." See id.⁷ On August 4, 2017, HHS published the Final Rule without making any further changes. 82 Fed. Reg. at 36625. The Final Rule became effective on October 1, 2017. Id. at 36530.

Plaintiffs filed this action in March 2018, challenging the Final Rule as arbitrary and capricious, and contending that it is contrary to the plain language of the Social Security Act's Medicare and Medicaid facility compliance provisions. (Docket entry no. 1.) Plaintiffs sought vacatur of the Final Rule, as well as declaratory and injunctive relief. (Id.) In September 2018, Defendant moved to dismiss the complaint for lack of subject matter jurisdiction (docket entry no. 25), and the parties simultaneously cross-moved for summary judgment (docket entry nos. 31, 39). The Court issued its Opinion in September 2019, granting Defendant's motion to dismiss the complaint for lack of jurisdiction, holding that Plaintiffs had failed to exhaust their administrative remedies with HHS. (Opinion at 8-13.) On appeal, the United States Court of Appeals for the Second Circuit held that the Medicaid portion of the statute is not subject to the administrative exhaustion requirement and that, accordingly, jurisdiction did exist as to Plaintiffs' claims arising under the Medicaid Act. See Avon Nursing, 995 F.3d at 310-15. The Second Circuit reversed the Opinion and remanded this case for further proceedings on the merits of Plaintiffs' claims arising under the Medicaid statutory provisions. Id.

On remand, Plaintiffs filed a Third Amended Complaint seeking APA review of the Final Rule, asserting that the Final Rule contravenes the plain language of the Medicaid Act by altering the requirements for...