Eleventh Circuit Rules CMS Not Justified in Its Action Against Emerald Shores

13 April 2009 Publication
Author(s): Michael A. Okaty Lawrence W. Vernaglia

Legal News Alert: Senior Living

The Centers for Medicare & Medicaid Services (CMS) abused its survey enforcement powers in imposing civil money penalties against a long-term care facility, according to an important decision by the United States Court of Appeals, Eleventh Circuit (Eleventh Circuit). Emerald Shores Health Care Associates, LLC (Emerald Shores) was recently awarded attorneys’ fees and costs in its longstanding battle against the CMS for an alleged failure to have an effective pest-control program in place. Emerald Shores had been exonerated when the Eleventh Circuit found CMS’s absence of pest-control standards made it impossible for Emerald Shores to know whether it was in substantial compliance with the pest-control regulation. Emerald Shores was further vindicated when its request for attorneys’ fees was granted. The court, without opinion, apparently agreed with Emerald Shores that CMS was not substantially justified in bringing the administrative action because there was not substantial evidence to support it. This award provides some hope to an industry that has been under significant attack by regulators and shows that there are lines CMS cannot cross when interpreting and enforcing its regulations against long-term care facilities.

Emerald Shores operates a skilled nursing facility in Florida, and it participates in the Medicare and Medicaid programs, which are administered by the CMS. By participating in these programs, Emerald Shores, like all other participants, is obligated to meet certain program requirements. Florida’s Agency for Health Care Administration (AHCA), with which CMS contracted to monitor and enforce the regulations, received a complaint that an Emerald Shores resident had been stung by fire ants. AHCA investigated and found that Emerald Shores failed to maintain an effective pest-control program and failed to develop and implement written policies and procedures that prohibit mistreatment, neglect, and abuse of residents.

Twelve days after the initial inspection, Emerald Shores was inspected again and found to be in substantial compliance with program regulations. Nevertheless, CMS imposed a civil penalty of $10,000 per day for the time between the two inspections. Emerald Shores challenged the penalty. Although AHCA determined that Emerald Shores had been in compliance during the time between the inspections, CMS did not rescind the penalty. Emerald Shores then filed for a hearing with the U.S. Department of Health & Human Services (DHHS). The administrative law judge similarly found that there were no punishable violations after the initial inspection. CMS requested the Departmental Appeals Board (DAB) review the decision, and the DAB reinstated the penalty, although it reduced the penalty amount to $8,500 per day.

Emerald Shores petitioned the Eleventh Circuit to review the decision. Because the regulations had few guidelines for maintaining an effective pest-control program, the Eleventh Circuit looked to what Emerald Shores would have reasonably been expected to do. The court noted that prior inspections revealed ants, although Emerald Shores had not been cited for pest violations. It noted further that CMS had never made recommendations to Emerald Shores concerning its pest-control program. The court also noted that once Emerald Shores learned of the pest problems, it immediately began implementing changes, following several of the pest-control providers’ suggestions for improvement. The court then ruled that “[i]n the absence of any mandatory, or even suggested, standards for establishing a pest control program, it is unreasonable to expect Emerald Shores to know that CMS would view its plan as not in substantial compliance with the statute.”

Emerald Shores then moved for attorneys’ fees and costs pursuant to the Equal Access to Justice Act, which permits the award of fees and costs to a prevailing party (other than the United States), unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust. Courts have been reluctant to award attorneys’ fees in similar cases. Here, Emerald Shores argued that the lack of substantial evidence to support the administrative action was a sufficient reason to find that the government’s action was not substantially justified. It pointed to the fact that CMS already had the state administrative law judge’s recommended order and AHCA’s final order, which held that Emerald Shores complied with the pest-control regulation as well as the DHHS administrative law judge’s finding that the charges against Emerald Shores were unsupported. The Eleventh Circuit agreed and awarded fees and costs totaling $104,801.32. This is more than just a slap on the wrist; it is a strong message from the federal court that CMS needs to be more thoughtful and not excessive in its enforcement of the survey and certification regulations.

The Eleventh Circuit’s original decision and its award of attorneys’ fees should give health care providers comfort, as regulatory bodies are now on notice that they must articulate measurable standards to allow providers to determine whether they are in compliance with applicable regulations.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our senior living clients and our colleagues.

Please contact your Foley Senior Living attorney if you have any questions about these topics or want additional information regarding senior living industry matters. Authors and editors:

Christopher S. Linde
Orlando, Florida

Lawrence W. Vernaglia
Boston, Massachusetts

Michael A. Okaty
Orlando, Florida