Mimiya Hospital, Inc. SNF v. United States Department of Health & Human Services

United States Court of Appeals
For the First Circuit

No. 02-1952

MIMIYA HOSPITAL, INC. SNF,

Petitioner,

v.

UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,

Respondent.

PETITION FOR REVIEW OF FINAL DECISION OF

THE DEPARTMENTAL APPEALS BOARD OF THE UNITED STATES

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Before

Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit Judge.

Blas R. Ferraiuoli Martinez, with whom Carmen Eva Garcia-
Cardenas was on brief, for Petitioner.
David A. Rawson, Assistant Regional Counsel, U.S. Department
of Health and Human Services, with whom Alex M. Azar II, General
Counsel, and Annette H. Blum, Chief Counsel, Region II, were on
brief, for Respondent.

June 9, 2003
 LIPEZ, Circuit Judge. Petitioner Mimiya Hospital, Inc.

SNF (Mimiya), a skilled nursing facility, seeks review of a final

decision of the Departmental Appeals Board (DAB) of the Department

of Health and Human Services. The case concerns Mimiya's request

for a hearing before an administrative law judge (ALJ) on the

imposition of a Civil Monetary Penalty (CMP) by the Centers for

Medicare and Medicaid Services (CMS) as a sanction for Mimiya's

noncompliance with federal Medicare participation requirements.

See 42 U.S.C. § 1395i-3(h)(2)(B)(ii). The ALJ dismissed Mimiya's

request on the ground that it was untimely, and the DAB, in

pertinent part, affirmed the dismissal. We, in turn, affirm the

decision of the DAB.

I.

To participate in Medicare, a skilled nursing facility

must comply with federal Medicare requirements set forth at 42

U.S.C. § 1395i-3 and at 42 C.F.R. Part 483. Generally, the

Department of Health and Human Services enters into agreements with

state agencies to conduct surveys of facilities on behalf of CMS--

the agency within the Department of Health and Human Services

responsible for administering Medicare--to determine whether the

facilities are in substantial compliance with the Medicare

participation requirements. 42 U.S.C. § 1395aa; 42 C.F.R. §§

488.10(a)(1), 488.26(c)(1). Facilities found not to be in

substantial compliance with participation requirements are subject

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to enforcement remedies by CMS. See 42 U.S.C. § 1395i-

3(h)(2)(B)(ii). If, after reviewing the survey results, CMS

decides to take enforcement action against a facility, it issues a

notice of initial determination which entitles the facility to a

hearing, provided that a request is filed within sixty days from

receipt of the notice of initial determination. 42 U.S.C. §

405(b); 42 C.F.R. §§ 498.3(b)(12), 498.5(b), 498.20(a), 498.40.

Regulations governing CMS's notice of initial determination state

that the notice must contain instructions for responding to the

notice, including a statement of the facility's right to a hearing

and the implications of waiving that right. 42 C.F.R. §

488.434(a)(2)(viii). Specifically, 42 C.F.R. § 488.436(b)(1)

provides that if a facility waives the right to a hearing within

sixty days from the receipt of notice of the initial determination,

CMS will automatically reduce the CMP by thirty-five percent.

In this case, the Puerto Rico Department of Health (PRDH)

conducted a survey of Mimiya from April 4 to April 6, 2000. The

survey found thirty-five separate deficiencies, one of which posed

immediate jeopardy to patient health or safety. On April 26, 2000,

the PRDH conducted a revisit survey to determine whether Mimiya had

made the required corrections to the immediate jeopardy deficiency

and found that the corrections had been made, although other non-

immediate jeopardy deficiencies persisted.

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 By letter dated May 26, 2000, CMS notified Mimiya of its

determination, based on the PRDH surveys, that Mimiya was not in

substantial compliance with the requirements for Medicare

participation. CMS further notified Mimiya of its decision to

impose the remedies of denial of payment for new admissions

effective May 28, 2000, denial of nurse aide training for two

years, and imposition of a CMP. The CMP consisted of $3,050 per

day for the twenty-two-day period of April 4, 2000 through April

25, 2000 during which Mimiya's noncompliance constituted immediate

jeopardy to resident health or safety, and $100 per day thereafter

until such time as Mimiya achieved substantial compliance or CMS

terminated the provider agreement. The May 26 letter further

stated, pursuant to 42 C.F.R. § 498.40, that Mimiya had sixty days

from receipt of the letter to request a hearing before an ALJ to

challenge CMS's determination. The letter did not inform Mimiya of

its option under 42 C.F.R. § 488.436 to waive the hearing in return

for a thirty-five percent reduction in the amount of the CMP.

Mimiya did not file a request for a hearing within the sixty-day

period.

By letter dated August 30, 2000, CMS notified Mimiya that

it had achieved substantial compliance as of June 22, 2000, and

that the $100 per day portion of the CMP would be imposed for the

period from April 26, 2000 through June 22, 2000 (a sum of $5,800).

Added to the $67,100 CMP imposed for noncompliance constituting

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immediate jeopardy, this brought the total CMP to $72,900. The

August 30 letter notified Mimiya of its right to request a hearing

within sixty days and included language, omitted in the May 26

letter, informing Mimiya that if it waived its right to a hearing,

the amount of the CMP would be reduced by thirty-five percent in

accordance with 42 C.F.R. § 488.436.

On October 22, 2000--149 days after CMS notified Mimiya

of its initial determination of noncompliance, and fifty-three days

after CMS notified Mimiya of its achievement of substantial

compliance--Mimiya requested a hearing before an ALJ to contest the

determination of noncompliance. On November 7, 2001, the ALJ ruled

that Mimiya's request was untimely and dismissed the request.

Mimiya appealed the dismissal to the DAB.

On June 5, 2002, the DAB issued a decision affirming the

ALJ's finding that the May 26, 2000 letter fully apprised Mimiya of

CMS's determination of noncompliance and the imposition of

penalties, and hence that Mimiya's October 22, 2000 request for a

hearing to contest the determination of noncompliance and

imposition of penalties was untimely. The DAB acknowledged that

the May 26 notice was defective in that it failed to inform Mimiya

of the option of a thirty-five percent reduction in exchange for

waiving the hearing, but found that this defect was easily cured by

awarding Mimiya a thirty-five percent reduction of the CMP imposed

for the immediate jeopardy deficiency. However, the DAB found

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that Mimiya was not notified of the substantial compliance

determination until August 30, 2000. The date of substantial

compliance is relevant to both the $100 per day portion of the CMP

and the penalty denying payment for new admissions until Mimiya

achieved substantial compliance. Because Mimiya was not notified

of the determination of the date of substantial compliance until

the August 30 letter, Mimiya's request for a hearing on this issue

was within the sixty-day period, and the DAB accordingly remanded

the case to the ALJ to allow Mimiya to challenge the compliance

determination date.

Although Mimiya appealed the DAB's decision denying the

hearing, the DAB's remand to the ALJ to allow Mimiya to challenge

the compliance determination raised an issue about the finality of

the DAB's decision. However, on March 24, 2003, subsequent to oral

argument, the parties notified us that they had responded to our

finality concerns by reaching a settlement agreement on the issues

remanded to the ALJ. Thus, the only issue outstanding in this case

is the DAB's denial of Mimiya's request for a hearing on CMS's

determination of noncompliance with federal Medicare participation

requirements.

II.

Mimiya contends that the notice provided by the May 26,

2000 letter was invalid for the purpose of triggering the sixty-day

period for requesting a hearing, and that valid notice was not

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provided until the August 30, 2000 letter. Thus, Mimiya reasons

that its request for a hearing on the determination of

noncompliance and imposition of penalties, filed within sixty days

of the August 30 letter, was timely. Mimiya offers two arguments

in support of this contention: (1) the failure of the May 26 letter

to inform Mimiya of the option of a thirty-five percent reduction

in the CMP in exchange for a waiver of hearing rights violated

Mimiya's due process rights and rendered the notice invalid; (2)

CMS is estopped from arguing that Mimiya's request for a hearing on

the determination of noncompliance and imposition of penalties is

untimely.

A. Due Process

The deprivation of a constitutionally protected interest

in life, liberty, or property is a threshold requirement for a

successful procedural due process claim. Aponte v. Calderon, 284

F.3d 184, 191 (1st Cir. 2002). It is, frankly, difficult to

understand the nature of the property interest that underlies

Mimiya's claim. Mimiya attempts to articulate that interest as

follows: "Medicare, through the creation of the above cited rules

for notification of penalties, endowed [Mimiya] with a proprietary

interest in being fully appraised [stet] of all its options when

facing an imposed CMP." This description seems to equate a

property interest with Mimiya's right to be advised of a thirty-

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five percent reduction in the CMP if it waived its right to a

hearing. This equation is erroneous.

It is well established that "individuals whose property

interests are at stake are entitled to notice and an opportunity to

be heard." Dusenbery v. United States, 534 U.S. 161, 167 (2002).

In this case, the property interest at stake (and the issue for

which Mimiya requests the hearing) is the CMP that Mimiya must pay

as a penalty for noncompliance with Medicare regulations. CMS

provided Mimiya with notice of the grounds for the noncompliance

determination, the penalties imposed for noncompliance, and the

opportunity to contest at a hearing the noncompliance determination

and the penalties. Although Mimiya did not exercise its right to

request a hearing, CMS complied with the requirements of due

process by giving Mimiya notice of the deficiencies and the amount

of the penalty, and an opportunity to be heard.

The deficiency in the May 26 notice provided by CMS did

not implicate the notice and opportunity to be heard requirements

of due process. Instead, that notice only failed to inform Mimiya

of the regulatory option of receiving a thirty-five percent

reduction in the CMP if it waived its opportunity to be heard.

This failure did not affect Mimiya's choice to forgo the hearing:

Mimiya was advised of its right to a hearing, and decided to give

up that right without knowledge of the financial benefit of doing

so. Because Mimiya so decided, the regulations governing the

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administration of federal Medicare requirements arguably entitled

Mimiya to the thirty-five percent reduction in the CMP. Mimiya

cannot use its ignorance of the thirty-five percent reduction as a

basis for requesting a hearing when that ignorance had no effect on

its decision to forgo a hearing.

Recognizing Mimiya's equitable claim to the financial

benefit provided by the regulations, the DAB awarded Mimiya the

thirty-five percent reduction in its decision on Mimiya's appeal,

thereby curing any harm from the deficiency in the May 26 notice.

As the DAB aptly observed:

Mimiya offered nothing to show how the failure
to receive the option to settle the CMP for
sixty-five percent would impact its due
process rights; indeed, by failing to request
a hearing based on the May 26 notice, it was
defaulting for the full imposed penalty
amount. If Mimiya did not seek a hearing for
the full proposed penalty amount, then
informing Mimiya of its option to waive its
right to a hearing in exchange for a thirty-
five percent penalty reduction would, if
anything, make Mimiya even less likely to seek
a hearing.

In fact, in its brief, Mimiya confirms that "[i]f CMS had met its

procedural obligations and notified Mimiya of all its rightful

options, [Mimiya] would have chosen the thirty-five percent

reduction at the time of the May 26, 2000 notification."

Therefore, the DAB's decision to award Mimiya the thirty-five

percent reduction on appeal cured any deficiency in the May 26

notice.

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 B. Estoppel

Mimiya argues that CMS should be estopped from arguing

that its request for a hearing was untimely because CMS's failure

to notify Mimiya of the waiver option amounted to a

misrepresentation on which Mimiya relied to its detriment. In

Heckler v. Community Health Servs., 467 U.S. 51 (1984), the Supreme

Court explained that a party seeking to assert estoppel must

demonstrate that (1) the party to be estopped made a "definite

misrepresentation of fact to another person having reason to

believe that the other [would] rely upon it"; (2) the party seeking

estoppel relied on the misrepresentations to its detriment; and (3)

the "reliance [was] reasonable in that the party claiming the

estoppel did not know nor should it have known that its adversary's

conduct was misleading." Id. at 59; see also Benitez-Pons v.

Commonwealth of Puerto Rico, 136 F.3d 54, 63 (1st Cir. 1998);

Clauson v. Smith, 823 F.2d 660, 661-62 (1st Cir. 1987).

We bypass the issue of whether CMS's omission of the

waiver option in the May 26 letter was a misrepresentation (without

suggesting that it was), and conclude that Mimiya's argument must

fail because Mimiya cannot show detrimental reliance. In order to

assert estoppel, a party must show that it "relied on its

adversary's conduct in such a manner as to change [its] position

for the worse." Heckler, 467 U.S. at 59 (internal quotation marks

omitted). Given the choice between paying the full amount and

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requesting a hearing, Mimiya in effect chose to pay the full

amount. Notice of the option of receiving a thirty-five percent

reduction for waiving its right to a hearing would not have altered

that choice, as Mimiya itself has conceded. See supra. Because

the DAB awarded Mimiya the thirty-five percent reduction, Mimiya

did not suffer any harm as a result of the omission. Therefore,

Mimiya has not demonstrated the detrimental reliance required by

estoppel.1

III.

For the foregoing reasons, the final decision of the

Departmental Appeals Board of the Department of Health and Human

Services is affirmed.

1
Assuming the availability of estoppel against the
government, we note that the burden for asserting such a claim is
greater than that for asserting estoppel against a private citizen.
Dantran, Inc. v. United States Dept. of Labor, 171 F.3d 58, 66 (1st
Cir. 1999) ("If estoppel against the government possesses any
viability . . . the phenomenon occurs only in the most extreme
circumstances.") But "however heavy the burden might be when an
estoppel is asserted against the Government, the private party
surely cannot prevail without at least demonstrating that the
traditional elements of an estoppel are present." Heckler, 467 U.S.
at 61. Because Mimiya fails to make that demonstration, we need
not discuss the precise parameters of an estoppel claim against the
government.

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