The Supreme Court Strikes.

On February 29, five of the nine justices of the U.S. Supreme Court decided that nursing homes have no right to judicial review of HCFA actions until they complete an administrative process controlled by HCFA. A nursing home can have its reputation assailed by the government on the Internet, lose its ability to admit patients, and be driven into bankruptcy, with no right to defend itself in court. According to Mark H. Gallant, member of the Philadelphia-based law firm of Cozen and O'Connor, who argued for the nursing homes in Shalala v. Illinois Council on Long-Term Care, Inc., no other business in the United States has been so completely deprived of the right to its day in court.

The case began when Illinois nursing homes found that the OBRA inspection manual issued by HCFA resulted in an impressive increase in the number of facilities found to be deficient by state inspection teams. The Illinois Council on Long-Term Care, a state affiliate of AAHSA, reported that while 6% of its members received major deficiency findings in 1994, after the 1995 inspection manual was used, 70% of the homes were found to be deficient. HCFA claimed that this jump in deficiencies resulted from "tough enforcement" of standards needed to protect nursing home residents. The nursing homes--with, in fact, the support of many inspectors--countered that the increase occurred because the new manual was too vague and confusing.

In theory, nursing home operators can request an administrative hearing to oppose alleged deficiencies and then seek judicial review if the administrative hearing rules against them. However, nursing homes must file a plan of correction with HCFA, even when the existence of deficiencies remains in dispute. Failure to file a plan of correction within 30 days is a separate offense that can lead to denial of federal reimbursement for patient care. Rather than risk this penalty, nursing homes almost always file the correction plan.

The problem is that HCFA stops the process when it is satisfied with the plan of correction. When a nursing home reported to have deficiencies offers a plan to correct the problems, it incurs no fines and, therefore, has no right to a hearing. Without a hearing, the dispute cannot continue into the court system. Thus, nursing homes never win: They can be financially "nuked" for failing to file a plan to correct disputed deficiencies or they are denied the right to contest the deficiency once they file a corrective plan.

There are additional, nonmonetary penalties thrown into the mix by HCFA, even when a correction plan is filed. Repeat findings of deficiencies, including those disputed by a nursing home, result in automatic denial of reimbursement. Even a "corrected" deficiency can, in some instances, deny nursing homes the right to train nursing assistants. The arrival of the Internet has produced another supposedly nonmonetary penalty: HCFA posts information about the deficiencies found in a nursing home on its Web site. In recent months, HCFA has invited potential residents to use its Web site to compare nursing homes, although it never uses the site to describe positive findings in an inspection.

The Illinois Council, on behalf of its members, asked the federal courts to declare this process to be unconstitutional. The Council argued that the regulations are too vague and do not provide a fair opportunity for nursing homes to be heard before financial penalties are assessed. In addition, although Congress required HCFA to issue regulations on enforcement of OBRA standards, HCFA responded with a manual for inspectors. New regulations require a notice-and-comment period to allow interested parties to identify possible problems; HCFA's inspection manual circumvented a review-and-comment period.

The government countered that the Council and its members had no right to sue. According to the government, objections to implementation of the Medicare Act are barred until the long-term care provider has received a final administrative hearing. None of the homes represented by the Long-Term Care Council has received a final decision from the administrative process, so use of the federal court system was, HCFA contended, premature.

The Supreme Court ruled in favor of the government. The majority opinion states, "The short, conclusive answer to these (Illinois) contentions is that the Secretary (of Health and Human Services) denies any such practices. The Council gives us no convincing reason to doubt the Secretary's description of the agency's general practice."

In effect, the Supreme Court ruled that nursing homes cannot complain about the fairness of an administrative process that denies access to the courts until they fail to gain satisfaction from the final stage of the administrative process. The Court suggested that nursing homes that don't believe they have deficiencies that endanger the health or welfare of residents should refuse to file a corrective plan, suffer the penalties, and then begin the lengthy process of filing suit against HCFA.

Mark Gallant was surprised that the justices who filed dissents against the majority's decision are all relatively conservative members of the Supreme Court. Justice Clarence Thomas, writing for this four-member minority, argued that there is a long-standing constitutional principle that "judicial review of executive action will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress...." He further wrote: "Our constitutional structure contemplates judicial review as a check on administrative action that is in disregard of legislative mandates or constitutional rights. As Chief Justice [John] Marshall explained [in 1835], 'It would excite some surprise if, in a government of laws and of principle, furnished with a department whose appropriate duty it is to decide questions of right...a ministerial officer might, at his discretion, issue this powerful process...leaving to [the claimant] no remedy and no appeal to the laws of his country, if he should believe the claim to be unjust.'"

It is easy for HCFA to tell the legislators that Shalala v. Illinois Council on Long-Term Care was about greedy healthcare providers trying to avoid necessary regulation. However, not long ago, the Clinton administration and a closely divided Congress passed legislation to protect taxpayers from the rampant abuses and arrogance of the IRS. Perhaps it is not too much to hope that the next administration and Congress might be willing to restore constitutional rights and protections to nursing home operators.