South Valley Health Care Center v. Health Care Financing Administration

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 11 2000
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

SOUTH VALLEY HEALTH CARE
CENTER,

Petitioner,
No. 99-9535
v.

HEALTH CARE FINANCING
ADMINISTRATION,

Respondent.

ON PETITION FOR REVIEW FROM AN ORDER
BY THE SECRETARY OF THE DEPARTMENT
OF HEALTH AND HUMAN SERVICES
(No. A-98-64)

Submitted on the briefs:

David M. Shell of the Law Offices of David M. Shell, Elk Grove, California, for
Petitioner.

Jay A. Swope, Chief Counsel, Region VIII, Patricia L. Bossert, Special Attorney
for the Department of Justice and Assistant Regional Counsel, Department of
Health and Human Services, Denver, Colorado, for Respondent.

Before BRORBY, PORFILIO, and MURPHY , Circuit Judges.

BRORBY , Circuit Judge.
 South Valley Health Care Center (South Valley) appeals from a final

decision of the Secretary of the Department of Health and Human Services (the

Secretary) affirming a civil money penalty against South Valley. The penalty was

levied by the Health Care Financing Administration (Administration) pursuant to

42 U.S.C. § 1395i-3(h)(2)(B)(ii) for South Valley’s noncompliance with the

conditions of a skilled nursing facility’s participation in a Medicare program.

Our jurisdiction arises under 42 U.S.C. § 1320a-7a(e), and we affirm. 1

I. Procedural background and standards of review

To participate as a skilled nursing facility in the Medicare program, the

facility must submit to random surveys conducted by state departments of health

on behalf of the Administration to ensure that it is meeting the program

requirements. See 42 C.F.R. § 488.305. After conducting a survey, the state

certifies the compliance or noncompliance of the facility, subject to the approval

of the Administration. See 42 C.F.R. § 488.330. A certification of

noncompliance reports deficiencies and recommends various remedies, including

1
After examining the briefs and appellate record, this panel has
determined unanimously that oral argument would not materially assist the
determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G).
The case is therefore ordered submitted without oral argument.

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civil money penalties. Factors to be considered in selecting remedies include the

seriousness of the deficiencies, whether they constitute a pattern of behavior, the

relationship of the deficiencies to one another, and the facility’s history of

noncompliance. See 42 C.F.R. § 488.404. The selection of remedies is further

limited by 42 C.F.R. § 488.408, which mandates application of certain remedies

and leaves others to the discretion of the Administration. Under this section, the

Administration has discretion to impose civil money penalties of $50-$3,000 per

day for any deficiency that is widespread and has potential for causing more than

minimal harm or that results in actual harm if the facility is not in substantial

compliance with the regulations. See § 488.408(d)(2). The Administration’s

discretion in regard to the amount of penalty to be imposed is further guided by

factors set forth in 42 C.F.R. § 488.438(b).

The facility may contest imposition of the civil money penalty in a formal

evidentiary hearing before an administrative law judge (ALJ), see 42 C.F.R.

§ 498.40, who may reduce but not set aside the penalty, and whose consideration

of penalty amount is limited to the same factors considered by the Administration,

see § 488.438(e). The ALJ may not review the exercise of discretion by the

Administration in deciding to impose a civil money penalty. See id. The

“HCFA’s determination as to the level of noncompliance of [a skilled nursing

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facility] . . . must be upheld [by the ALJ] unless it is clearly erroneous.”

42 C.F.R. § 498.60(c)(2).

The decision of the ALJ, in turn, is subject upon request to review by the

Departmental Appeals Board (Board). See 42 C.F.R. § 498.80. The Board may

either adopt, modify, or reject the ALJ’s decision, based upon the evidence in the

record. See 42 C.F.R. § 498.88. This decision becomes the Secretary’s final

decision and may be appealed directly to the United States Courts of Appeal. See

42 C.F.R. § 498.90(a)(1).

On review in this court, the Secretary’s findings of fact, “if supported by

substantial evidence on the record considered as a whole, shall be conclusive.”

42 U.S.C. § 1320a-7a(e). We give substantial deference to an agency’s

interpretation and application of its own regulations. See Colorado Dep’t of

Social Servs. v. United States Dep’t of Health & Human Servs. , 29 F.3d 519, 522

(10th Cir. 1994). Further, a decision within the agency’s discretion is “entitled to

a presumption of regularity.” Franklin Sav. Ass’n v. Director, Office of Thrift

Supervision , 934 F.2d 1127, 1141 (10th Cir. 1991). When reviewing the legal

propriety of a civil money penalty, we have the power to affirm, modify, set aside,

or remand the order. See § 1320a-7a(e).

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 II. Factual background

The factual predicate on appeal is undisputed. South Valley was surveyed

on February 29, 1996, by the Utah Department of Health and found to have

fifteen substantial deficiencies, including failure to comply with 42 C.F.R.

§ 483.25(c), which sets forth the standards for prevention and treatment of

pressure sores. Specifically, at the time of the survey, three residents had

pressure sores that were determined to be avoidable. The State warned South

Valley that if the deficiencies were not corrected by May 29, 1996, it would

recommend imposition of a civil money penalty of $2720 per day, a directed plan

of correction, and termination of its Medicare agreement. On June 10, 1996, the

State again surveyed South Valley and found that, although it had corrected other

deficiencies, it was still substantially noncompliant with the pressure sore quality

of care requirements. According to the second survey, an additional patient had

developed a new, avoidable pressure sore, and South Valley still had not

implemented a skin assessment/wound care team that was part of its plan of

compliance intended to prevent such developments. After notification, the

Administration imposed a penalty of $1300/day to be effective February 29, 1996,

along with other remedies. In a subsequent survey, the State determined that

South Valley was in substantial compliance with the pressure sore requirements

on June 24, 1996. The Administration thus limited its penalty to a time period of

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February 29 through June 24, 1996, for a total of $150,800. South Valley

administratively appealed the penalty.

In a detailed and well-documented decision, the ALJ found that (1) South

Valley was not in substantial compliance with 42 C.F.R. § 483.25(c) on

February 29, 1996; (2) it did not fully implement its plan of correction or come

into substantial compliance with the regulation as of May 20, 1996, as evidenced

by (a) its failure to correct a systemic pressure sore care and documentation

problem, (b) its failure to conduct satisfactory inservice training for skin care and

wound prevention, (c) its failure to establish a functioning wound care team,

(d) its failure to conduct or monitor its skin check program until May 20, 1996,

and (e) the fact that a resident developed a new pressure sore between the initial

survey and the revisit; (3) the pressure sore developed after February 29 was

avoidable but occurred because South Valley did not provide the necessary

services to promote healing and prevent infection; (4) South Valley’s failure to

change the resident’s position in bed on an hourly basis did not contribute to the

development of the pressure sore; (5) the ALJ would not disturb the

Administration’s finding that South Valley was in substantial compliance with the

pressure wound regulation by June 24, 1996; (6) the penalty of $1,300/day was

not reasonable; and (7) a penalty in the amount of $400/day was reasonable.

Neither South Valley nor the Administration objected to findings numbered (1),

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(2)(a)-(d), (4), or (5). After appeal to the Board, the Board adopted all the ALJ’s

findings except for number (6), and it modified finding number (7) to reinstate the

penalty of $1,300/day.

III. Analysis

South Valley raises seven issues on appeal to this court. Five are

challenges to the sufficiency of the evidence; two allege legal error. For

substantially the same reasons as stated in the ALJ’s March 27, 1998 decision, we

conclude that challenged findings numbered (2), (2)(e), and (3) are supported by

substantial evidence in the whole record and are therefore conclusive. South

Valley asserts that finding number (2) was improperly based on the fact that a

single resident developed a single pressure sore, but that claim is belied by

unchallenged findings (2)(a)-(d), which establish that South Valley’s substantial

noncompliance was also based on its widespread program, documentation, and

training failures.

South Valley’s remaining issues challenge the reasonableness of the

$1,300/day penalty. It contends that the Board erred in concluding that the

Administration properly based the penalty on the fact that there were numerous

deficiencies at the time of the February survey even though all but one of the

categories of deficiency had been corrected by June 24, 1996. We disagree. As

the Board pointed out, the regulations provide for imposition of penalties from the

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first date a skilled nursing facility is determined not to be in substantial

compliance with one or more requirements. See 42 C.F.R. § 488.430(a); 42

C.F.R. § 488.301 (defining “substantial compliance” as “a level of compliance

with the requirements of participation such that any identified deficiencies pose

no greater risk to resident health or safety than the potential for causing minimal

harm”). The notice letter to South Valley warned that a civil money penalty

would be issued for the deficiencies discovered in February if it did not achieve

substantial compliance by May 26, 1996. Further, the Administration’s reduction

in penalty from $2,720/day to $1,300/day reflected the Administration’s reasoned

consideration that South Valley had corrected most of the deficiencies unrelated

to pressure sore treatment. We conclude that the Administration properly

considered all deficiencies in determining an appropriate penalty.

We next address South Valley’s contention that the penalty must be set

aside or modified because the Administration allegedly did not comply with the

regulations in determining a reasonable penalty. South Valley’s failure to comply

with the requirements of § 483.25(c) resulted in actual harm to its residents.

Under § 488.408(d)(2)(ii), the Administration was mandated to impose a

“Category 2” remedy, which included penalties ranging from $50-$3,000/day. In

determining the penalty to be assessed within this range, the Administration was

required to consider the facility’s history of noncompliance, its financial

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condition, and the facility’s degree of culpability. See 42 C.F.R. § 488.438(b),

(f). “Culpability” includes “neglect, indifference, or disregard for resident care,

comfort or safety,” but absence of culpability is not a mitigating circumstance for

reduction of the penalty. § 488.438(f)(4). The Administration must also consider

the seriousness of the deficiencies and whether they are widespread as well. See

488.438(f)(3); § 488.404.

The notice letter informed South Valley that the Administration was

imposing the penalty of $1,300/day because of (1) the decrease in the level of

substantial noncompliance, (2) the number of residents affected by its

noncompliance, and (3) the fact of actual harm. Thus, the letter provided

evidence that the Administration considered South Valley’s history of

noncompliance, the potential widespread effect of its facility-wide noncompliance

with skin care assessment and wound treatment requirements, and the seriousness

of the actual harm. Contrary to South Valley’s assertion, there is no regulation

requiring the Administration to compare South Valley’s compliance record with

that of other skilled nursing facilities.

At the hearing, a representative from the Administration testified that, for

isolated deficiencies resulting in actual harm, it had developed a chart that

imposed a base fine of $100/day, plus an occupied bed fine of $10/day, plus an

individual affected resident fine of $100/day. The occupied bed fine was

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intended to take into account a facility’s ability to pay, based on the reasonable

implication that the more residents a facility has, the more money it is paid by

Medicare. Use of the chart to aid the Administration in determining a reasonable

civil money penalty did not conflict with the mandates of the regulations. We

conclude that the Administration sufficiently guided its discretion with the

statutorily-required considerations and that it did not abuse its discretion in

imposing a penalty of $1,300/day. The civil money penalty resulted from an

appropriate and reasonable exercise of the Secretary’s discretion.

The determination of the Secretary is AFFIRMED.

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