High court rebuffs challenge to survey enforcement process.

BY A VOTE OF 5 TO 4, THE U.S. SUPREME COURT RULED IN Shalala v. Illinois Council on Long Term Care Inc. that trade associations representing nursing homes may not go directly to federal court to contest the legality of Health and Human Services' (HHS) survey enforcement and appeal system.

The upshot of the ruling, say industry observers, is an enforcement scheme that, rather than being uniform and consistent, which was Congress' intent, is--and will continue to be--interpreted and enforced in widely varying ways among the states.

The Illinois Council on Long Term Care Inc. (ICLTC) brought an action in federal court in early 1996 to challenge HHS' use of state operations manual provisions, rather than rules adopted after a notice and comment period, to establish the critical details for assigning "scope and severity" levels to nursing home deficiency citations, and for determining sanctions for violations.

ICLTC also asserted that the standards in the published regulations for assessing scope and severity are unconstitutionally vague, and that numerous blockades and pitfalls to obtaining meaningful review under the administrative appeals system deny nursing homes due process of law in violation of the 14th Amendment to the U.S. Constitution.

The due process argument

With respect to the due process argument, ICLTC argued that the rules limit the right to an administrative appeal to a small class of cases in which certain categories of sanctions--termination, denial of payment for new admissions, and civil monetary penalties--were meted out.

The rules also mandate that in all cases in which a facility is cited for lack of substantial compliance with the OBRA '87 standards, a plan of correction (POC) must be submitted. While HCFA accepts POCs in most cases, the rules further provide that if HCFA accepts a POC without applying one of the sanctions listed above, the right to an administrative hearing is rescinded. What's more, in the limited instances in which a sanction is applied or POC rejected and an appeal is therefore permitted, the facility can, in most cases, contest the deficiency only and not the "scope and severity" level assigned to it.

The U.S. Court of Appeals for the Seventh Circuit ruled in ICLTC's favor, bringing it into conflict with the Sixth Circuit Court of Appeals, which had recently sided with HHS in rejecting a similar suit brought by the Michigan Academy of Homes and Services for the Aging. Because of the conflict between the circuits, the U.S. Supreme Court acceeded to HHS' request to review the ICLTC case.

Joined by amici curiae, or friends of the court, including the American Association of Homes and Services for the Aging (AAHSA) and the American Health Care Association (AHCA), the ICLTC contended that the rules--which were intended by Congress to create a uniform and consistent enforcement scheme--were unfair, unfathomable, and being interpreted and enforced in widely varying ways among the states.

The ruling

In the Feb. 29 opinion written by Clinton appointee Justice Stephen Breyer, and joined in by Chief Justice Rehnquist, and justices O'Connor, Stevens, and Souter, the court determined that the rules can be challenged only in the context of an appeal brought by an individual facility that has "exhausted its administrative remedies" before an administrative law judge, after sanctions have been imposed.

In so concluding, the majority relied on a provision of the Medicare statute that prohibits direct access to judicial review, and requires prior "exhaustion" of administrative remedies in cases in which a provider seeks to "recover on any claim" arising under the Medicare statute. The majority rejected the industry's contention that this review-limiting provision is inapplicable to cases challenging the regulatory scheme as a whole.

The industry also had forcefully noted in its briefs that administrative appeals generally are unavailable. Yet deficiency citations--including those that brand a home as providing "substandard quality of care," mandate notices to state licensing boards and admitting physicians, and get posted for national consumption on HHS' new "nurse compare" Web site--remain on the record, despite the fact that a facility may not appeal to contest the deficiency citation.

Unappealable deficiencies (level G or above) can also subject a facility to heightened sanctions and to the immediate ("no grace period") imposition of civil monetary penalties in subsequent surveys. The majority paid lip service to this concern by observing that a facility may preserve its right to appeal simply by refusing to submit a POC upon being found out of compliance. Accepting at face value the representation made by government's attorney that HHS "rarely" terminates the participation of nursing homes from Medicare and Medicaid, the majority dismissed the industry's concerns that facilities would independently be subject to termination for refusing to submit a POC, irrespective of the nature of the underlying violation.

A strongly worded dissent (crediting arguments made by AAHSA and AHCA) was issued by justice Thomas and joined in (in whole or in part) by justices Scalia, Stevens, and Kennedy. The dissent cited two prior Supreme Court decisions hold-ing that the relevant Medicare Act provision requires only an administrative appeal as a precondition to judicial review in cases involving provider-specific sanctions or disputes, and not to "systemic" legal or constitutional challenges to rules and policies.

The dissent also criticized the majority for telling nursing homes they could gain access to an administrative hearing and to judicial review by refusing to submit a POC, noting that whether a "termination" (or other serious sanction) is applied to a nursing home that refuses to submit a POC is at HHS' discretion. In a separate dissenting opinion, Justice Scalia expressed concern about the fact that reputations of nursing homes were being tainted by their listing on the HHS Web site without the ability to contest the deficiency that caused the listing.

Note: During the pendency of the Supreme Court's decision in Shalala v. Illinois, HHS amended its rules to allow appeals from deficiency citations which directly cause a facility to lose its right to conduct nurse aide training and certification, even where a POC is accepted and other sanctions are not imposed.

Mark H. Gallant is chair of the health law department of Cozen and O'Connor, a Philadelphia-based national law firm. Gallant represented the Michigan Association before the Sixth Circuit and filed a friend-of-the-court brief in Shalala v. Illinois Council on Long Term Care Inc. on behalf of AAHSA.