ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Virginia Wright Caudill Steve Carter
Robert W. Markette, Jr. Attorney General of Indiana
Indianapolis, Indiana
David L. Steiner
Laureanne Nordstrom
Deputies Attorney General
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE
Peter D. Keisler
Assistant Attorney General of the
United States
Susan W. Brooks
United States Attorney
James P. Hanlon
Assistant United States Attorney
Michael S. Raab
Mark S. Davies
Attorneys, Appellate Staff, Department
of Justice
In the
Indiana Supreme Court
_________________________________
No. 18S02-0405-CV-198
ADVANTAGE HOME HEALTH CARE, INC.,
Appellant (Plaintiff below),
v.
INDIANA STATE DEPARTMENT OF HEALTH
AND INDIANA STATE HEALTH COMMISSIONER,
Appellees (Defendants below).
_________________________________
Appeal from the Delaware Circuit Court, No. 18C01-0109-CP-547
The Honorable Marianne Vorhees, Master Commissioner
The Honorable Wayne Lennington, Judge
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 18A02-0211-CV-928.
_________________________________
June 22, 2005
Shepard, Chief Justice.
Dissatisfied with reports about inspections the Indiana Department of Health conducted
of its facilities, appellant Advantage Home Health Care filed for declaratory judgment. It sought
to establish that the inspection reports and accompanying requests for correction of deficiencies
constituted orders appealable under the Administrative Orders and Procedures Act. Because
Advantage did not exhaust the administrative procedures available to it, the trial court properly
granted judgment to the Department.
Facts and Procedural History
Advantage Home Health Care, Inc., is a home health agency that provides patients with
both skilled and unskilled in-home health care services. The Indiana State Department of Health
licenses Advantage and other providers, assuring compliance with various state statutes and
regulations concerning the operation of home health agencies. Advantage is also a certified
provider under the federal Medicare and Medicaid programs and must comply with federal
statues and regulations as well as with certain standards known as “conditions of participation”
in order to receive federal funds.
To maintain its state license and federal certification, Advantage is subject to inspections
commonly referred to as “surveys.” The Department conducts these surveys on a routine annual
basis, or if a complaint is received concerning the home health agency. Even though only a
single inspection usually occurs, the Department acts in two distinct capacities when it conducts
surveys: 1) as a state licensing and regulatory agency; and 2) as an agent of the federal Centers of
Medicare and Medicaid Services.
2
Once the inspection is complete, the investigator produces two survey reports, one report
addressing compliance with state law and the other compliance with federal law. The two
reports each set forth various “findings” that are essentially statements made by the investigator
as a result of her inspection. The “findings” are based on information collected during the
inspection from interviews, the review of records, and observations of the treatment provided by
the agency.
Completed reports are recorded on a standard form called a “Statement of Deficiencies
and Plan of Correction,” with one form referring to state law and one to federal law. These are
sent from the field to the Department’s main office. The Department then forwards the
statements of deficiency to the home health agency. It also sends an accompanying letter that
summarizes the survey results, and requests that the agency submit a “plan of correction” to
detail how it will address the identified violations. The letter also informs the home health
agency of the opportunity to contest the deficiencies listed by invoking an Internal Dispute
Resolution (“IDR”) process.
At the time the facts relevant to this case arose, the Department’s IDR process afforded
an agency both a paper review and a “face-to-face” review of the statement of deficiencies.
(Appellant’s App. at 750.) In the paper review, the IDR panel reviews the statement of
deficiencies and any documentation provided by the agency and can remove, modify or leave
unchanged any of the deficiencies identified. If the agency is dissatisfied with the results of the
paper review, it can request a face-to-face review in which the agency can speak directly with the
IDR panel.
In April 2001, the Department completed both state and federal surveys of Advantage
after receiving a complaint that a nurse employed by Advantage struck a special needs child in
the mouth. The surveys identified three violations of Indiana’s home health rules and about
twenty-six violations of federal regulations. On May 23, 2001, the Department sent a letter, and
federal and state statements of deficiency to Advantage. The letter, like the first page of the
federal statement of deficiency, indicated that Advantage was out of compliance with two federal
conditions of participation and informed Advantage that “in order to interrupt this determination
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of noncompliance process a Credible Allegation of Compliance must be submitted to this office
for each condition cited and a plan of correction for each standard level deficiency cited.”
(Appellant’s App. at 502.) The letter briefly mentioned the existence of state deficiencies. 1 It
also informed Advantage of its ability to “contest deficiencies contained in the Statement of
Deficiencies” through the IDR process. (Appellant’s App. at 503.)
Advantage filed a plan of correction and on June 4, 2001, it requested administrative
review of the surveys under the Administrative Orders and Procedures Act (“AOPA”), Ind. Code
Ann. §§ 4-21.5-1-1 to -7-9 (West 2002). On June 8, 2001, the Department responded by letter,
informing Advantage that surveys did not constitute orders and were not subject to review under
AOPA. It told Advantage of its opportunity to challenge that decision through administrative
review, though Advantage never sought review of the June 8 decision. (Appellees’ Br. at 11-12.)
Instead of seeking administrative review of the Department’s decision that surveys did
not constitute orders, Advantage requested a paper IDR for both survey reports on August 23,
2001. Following that review, the Department issued revised state and federal surveys on
October 23, 2001. On October 26, 2001, Advantage requested a face-to-face IDR of the federal
survey, and in response to that request, a further revised federal survey was issued on January 17,
2002. (Appellant’s App. at 750.)
On September 25, 2001, Advantage filed a complaint for declaratory judgment seeking to
reverse the Department’s position that a survey was not an order subject to review under AOPA.
The trial court granted summary judgment in favor of the Department, concluding that the
surveys were exempted from AOPA pursuant to Ind. Code § 4-21.5-2-5(9), (10). It also held that
surveys did not meet AOPA’s definition of “order” because they simply documented the findings
of investigations.
Advantage appealed. The Court of Appeals reversed, holding that the statement of
deficiencies constituted an order obliging Advantage to file a plan of correction “within a certain
1
The letter’s reference to the state deficiencies is a passing mention in a single sentence: “The survey report reveals
that, in addition to state deficiencies, there are federal deficiencies that are preventing your facility from being in
compliance with the requirements [established for Medicare/Medicaid certification].” (Appellant’s App. at 502.)
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period of time and in a certain required manner.” Advantage Home Health Care, Inc. v. Indiana
State Dept. of Health, 792 N.E.2d 914, 917 (Ind. Ct. App. 2003) vacated. It also held that the
statement of deficiencies did not fall under the list of exempt agency actions. Id. at 918. We
granted transfer.
I. The Federal Survey
The primary issue joined by the parties is whether the state and federal surveys are
subject to review under AOPA. (Appellant’s Br. at 11-22; Appellees’ Br. at 15-19.) Advantage,
in the alternative, argues that even if AOPA does not apply to the statements of deficiency, their
due process rights entitle them to an independent review of the statements. The Department also
urges that it was entitled to judgment because Advantage did not pursue its administrative
remedies.
We begin by addressing the status of the federal surveys. Appearing as Amicus Curiae,
the United States has expressed grave concern that the opinion of the Court of Appeals could be
read as subjecting the survey reports conducted by the Department on behalf of the federal
government to state administrative review. Of course, the Court of Appeals opinion was vacated
at the time we granted transfer. See Ind. Appellate Rule 58(A).
At oral argument before this Court, however, Advantage declared that it does not seek
review of the federal survey under AOPA, but seeks review of the survey produced by the
Department acting in its role as the state licensing agency. 2 In light of that indication, we need
only consider the application of AOPA to the survey conducted by the Department as a state
licensing board.
2
The oral argument for this case, and all other oral arguments before this Court since 2001, may be found at
http://www.indianacourts.org/apps/webcasts. Oral arguments before the Court are broadcast live over the internet,
and are also stored in a searchable online archive.
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II. Exhaustion of Administrative Remedies
The Department sought judgment in the trial court on grounds that Advantage failed to
exhaust its administrative remedies prior to seeking relief from the courts. (Appellant’s App. at
186-187.)
The basis of the Department’s argument is that the letter sent on June 8, 2001, informing
Advantage that its request for an administrative hearing was denied because surveys did not
constitute orders under AOPA, was itself an order and therefore subject to the review procedures
outlined in Ind. Code Ann. § 4-21.5-3-7 (West 2002). (Appellees’ Br. at 11-14.) It contends that
Advantage’s failure to invoke these processes should bar Advantage from seeking relief in the
courts.
It has long been Indiana law that a claimant with an available administrative remedy must
pursue that remedy before being allowed access to the judicial power. City of East Chicago v.
Sinclair Refining Co., 232 Ind. 295, 306, 111 N.E.2d 459, 464 (1953). Quite beside this general
jurisprudential rule of administrative law, the legislature has codified this principle. See Ind.
Code Ann. § 4-21.5-5-4 (West 2002).
We have on several occasions articulated the reasoning behind this policy of requiring
exhaustion of administrative remedies before review by courts is permitted. As we noted in
Turner v. City of Evansville:
Premature litigation may be avoided, an adequate record for judicial review may
be compiled, and agencies retain the opportunity and autonomy to correct their
own errors. Even if the ground of complaint is the unconstitutionality of the
statute, which may be beyond the agency’s power to resolve, exhaustion may still
be required because ‘administrative action may resolve the case on other grounds
without confronting broader legal issues.’
740 N.E.2d 860, 862 (Ind. 2001) (quoting State Bd. of Tax Comm’rs v. Montgomery, 730
N.E.2d 680, 684 (Ind. 2000)). Justice Sullivan noted several additional benefits of this approach:
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The exhaustion requirement serves to avoid collateral, dilatory action of the likes
of the instant action and to ensure the efficient, uninterrupted progression of
administrative proceedings and the effective application of judicial review. It
provides an agency with the opportunity ‘to correct its own errors, to afford the
parties and the courts the benefit of [the agency’s] experience and expertise, and
to compile a [factual] record which is adequate for review.’
Austin Lakes Joint Venture v. Avon Util., Inc., 648 N.E.2d 641, 644 (Ind. 1995) (quoting
Uniroyal, Inc. v. Marshal, 579 F.2d 1060, 1064 (7th Cir. 1978)) (alteration in original). 3 Where
such an administrative remedy is readily available, filing a declaratory judgment action is not a
suitable alternative. See Turner, 740 N.E.2d at 862.
The essence of Advantage’s claim is that the Department made a “mistake” in
determining that the survey it issued did not constitute an order under AOPA. As noted above,
one of the primary reasons to require exhaustion of remedies is to provide the agency an
opportunity to correct its own mistakes without wasting resources in a protracted series of
collateral court proceedings.
That is exactly what has occurred here. Advantage had every opportunity to pursue
administrative review of the June 8th determination, but it instead chose to seek judicial action on
exactly the same question rather than permitting more senior officials in the Department to
correct the mistake.
That is assuming the Department’s determination of June 8th is mistaken at all. The term
“order,” in the context of administrative law, carries with it a sense of formality and finality. In
essence, the term order “implies a formal agency mandate issued at the culmination of some
regular agency proceeding, and it includes any rule, regulation, direction, requirement, standard,
determination or decision of the agency . . . .” 73A C.J.S. Public Administrative Law and
Procedure § 279 (2004).
3
Many of these considerations inform our view that “the exhaustion requirement . . . should not be dispensed with
lightly on grounds of ‘futility.’” M-Plan, Inc. v. Indiana Comprehensive Health Ins. Ass’n, 809 N.E.2d 834, 839
(Ind. 2004) (quoting Town Council of New Harmony v. Parker, 726 N.E.2d 1217, 1224 (Ind. 2000)) (internal
citations omitted).
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In this case, statements of deficiencies represent something rather different from this
concept of “order.” The Department’s statement of deficiency represents little more than the
initial summation of its investigation. The statements certainly do reach some conclusions in the
sense that they represent the end product of the investigation, but they produce nothing that
approaches a “formal agency mandate.”
The statement of deficiency in this instance reported findings that the Department might
use as part of a separate and distinct agency action should it pursue sanctions against Advantage
for non-compliance. This, of course, is the very function of an administrative investigation. An
investigation is “an informal proceeding to obtain information to govern future action, and is not
a proceeding in which action is taken against anyone.” 73 C.J.S. Public Administrative Law and
Procedure § 145 (2004). Moreover, the “purpose of an administrative investigation is to discover
and procure evidence, and not to prove a pending charge or complaint, and thus, its function is
distinct from an adjudication.” Id. This is precisely what the statements of deficiencies issued by
the Department actually do. They do not seek to adjudicate compliance or non-compliance, but
rather serve as a starting point from which the Department may judge the compliance of
Advantage, or any home health agency, and determine if sanctions are appropriate.
Advantage insists that because the statement of deficiency requires the submission of a
plan of correction, it fits within AOPA’s definition of order as “1) an administrative agency
action of; 2) particular applicability; 3) that establishes definitely; 4) the duty to submit a plan of
correction.” (Appellant’s Br. at 14) (echoing Ind. Code Ann. § 4-21.5-1-9 (West 2002)).
However, the “duty” to submit a plan of correction is, at best, modest. The scope of the duty to
file a plan of correction, as conceded by Advantage at oral argument, requires nothing more than
the filing of a statement asserting that the home health agency believes itself to be in compliance
with the applicable state laws and regulations. To embrace the notion that our legislature
intended routine judicial oversight of minimal agency requirements, one would have to imagine
that it desires more muscular judicial activity than seems likely.
The D.C. Circuit, perhaps the nation’s leading situs of administrative law disputes, has
concluded that similar agency action is not subject to judicial review under the federal
8
Administrative Procedures Act. In Reliable Automatic Sprinkler Co. v. Consumer Prod. Safety
Comm’, it held that the Consumer Product Safety Commission (“CPSC”) did not take a final
agency action, defined as an action which “imposes an obligation, denies a right, or fixes some
legal relationship,” 4 when it informed Reliable of its intent to make a preliminary determination
that sprinkler heads manufactured by Reliable constituted a “substantial product hazard.” 324
F.3d 726, 729, 731 (D.C. Cir. 2003). The court reached this conclusion because the CPSC’s
actions “amount[ed] to an investigation of appellant’s sprinkler heads, a statement of the
agency’s intention to make a preliminary determination . . . and a request for voluntary corrective
action.” Id. at 731.
Although certainly not identical to the circumstances at bar, the facts in Reliable are
sufficiently analogous to make the D.C. Circuit’s reasoning helpful. Like Reliable, Advantage
was the subject of an investigation and received a summary of that report. Similarly, the survey
report was “preliminary” in the sense that the IDR process was available to Advantage and in the
sense that the results of the report would still be subject to challenge if the Department ever uses
the survey report as the basis for imposing sanctions against Advantage. While the request for a
plan of correction certainly requires response, the system supplies so much leeway in fashioning
an appropriate reply that it can barely be compared to a directive that might say, “Do this or we
will fine you ‘X’.”
Moreover, if such a minimal response would be enough to require review it would
subject agencies to judicial oversight of relatively simple communications. While the legislature
may have intended AOPA as a check on the potential abuses of administrative agencies, the
intent could not have been to so hamper the agencies in carrying out their responsibilities that
AOPA becomes a shield for regulated entities to commit their own abuses.
III. Conclusion
4
Compare with AOPA’s definition of “order” found at Ind. Code Ann. § 4-21.5-1-9 (West 2002), which provides
that “‘Order’ means an agency action of particular applicability that determines the legal rights, duties, privileges,
immunities, or other legal interests of one (1) or more specific persons.”
Although not identical, the federal definition of “final agency action” and AOPA’s definition of “order” each
indicate not only a sense of finality, but also an imposition of some meaningful duty on the affected party.
9
Because Advantage failed to exhaust available administrative remedies by not seeking
administrative review of the Department’s June 8th letter, the trial court correctly granted
judgment to the Department. We affirm.
Dickson, Sullivan, Boehm, Rucker, JJ., concur.
10