As part of its survey process, the Centers for Medicare & Medicaid Services is authorized to take several enforcement actions, including but not limited to imposing civil money penalties (CMP), denials of payment for new admissions and/or termination from the Medicare program. 

The latter is the equivalent of a financial kiss of death.

But what can a SNF do if it believes that the alleged deficiencies have no factual or legal basis, and the surveyors got it wrong? Unfortunately, SNFs have not fared well in the formal appeals process. For example, of the 47 cases that were appealed and decided last year, CMS prevailed 46 times with only one provider victory. 

CMS has prevailed in over 95% of SNF appeals for years. Can it be that CMS is virtually always right and providers are always wrong? Not quite. 

Several important developments — including two recent Supreme Court of the United States decisions — have altered the legal landscape, which gives providers a more equitable chance of prevailing.  First, let’s briefly review the appeals process.

Appeal of CMS enforcement actions

When CMS imposes an enforcement action (euphemistically called a “remedy”), a provider has 60 calendar days to file a formal appeal with the Department of Health and Human Services (HHS) Departmental Appeals Board. The first level is a hearing before an administrative law judge (ALJ). 

It typically takes at least three years from the time an appeal is filed to receive the ALJ’s decision. Either CMS or the provider may appeal the ALJ’s decision to the board, which results in a panel reviewing the ALJ decision. A SNF can further appeal to a federal court of appeals or the district court in that jurisdiction depending on the enforcement action. 

Given the statistical probability of a decision favorable to CMS at the ALJ and board levels, most attorneys representing SNFs advise their clients that they might not prevail until they are before a court of appeals, which generally takes five years or longer. Thus, the appeals process is time consuming, expensive and generally an uphill battle for providers. However, that may be changing.

The tide may be turning

CMS often imposes an enforcement action based solely on “guidance,” such as its State Operations Manual and “Interpretive Guidelines.” Legally, even as CMS acknowledged in an official memorandum, CMS may not cite a deficiency based solely on interpretive guidelines. A deficiency must be based on a regulatory violation. An example of a deficiency — and CMP —  based on CMS “guidelines,” not a regulation, is seen in Elgin Nursing and Rehabilitation Center v. HHS, No. 12-60086 (5th Cir. 2013) (Elgin). 

In Elgin, a SNF was cited with “immediate jeopardy-level deficiencies” when surveyors claimed residents were served “soft-cooked” eggs. It did not matter that the residents wanted their eggs over-easy. When the provider appealed the deficiency and CMP, the ALJ upheld CMS’ determination. On further appeal, the board affirmed the ALJ decision. Undaunted, the provider appealed to the U.S. Court of Appeals for the Fifth Circuit, where CMS argued the court should afford “deference” to CMS’ interpretation of its regulation. 

The court found that the alleged deficiencies were not deficiencies at all. Rather, they were interpretations of interpretations of a regulation that requires food to be cooked in a “sanitary” manner. CMS relied in part on a letter from its regional office interpreting the SOM, which in turn interpreted the regulation. The court held, “Allowing deference to agency interpretations of ever more ambiguous regulations would allow the agency to function not only as judge, jury, and executioner but to do so while crafting new rules.” Thus, it refused to afford deference to CMS’ interpretations and reversed the ALJ and board’s decisions.

SCOTUS further limits deference to agencies

In 2019, SCOTUS decided two cases that likely will impact appeals by SNFs. A brief takeaway from Kisor v. Wilke is that a court may not give unfettered deference to an agency’s interpretation of its regulations. Rather, according to SCOTUS, “deference is sometimes appropriate and sometimes not.” SCOTUS outlined multiple steps a federal court must take before it blithely affords deference to an agency’s interpretation of its regulations. 

Another important decision from SCOTUS is Azar v. Allina Health Services, where HHS retroactively reduced Medicare payments based on a regulation that SCOTUS subsequently invalidated. SCOTUS held that HHS must go through notice-and-comment rulemaking, which affords the public a chance to comment when the secretary “wishes to establish or change a ‘substantive legal standard.’” Thus, a regulation must be validly promulgated if it is to be used as a basis for an enforcement action.

Will Kisor and Allina level the playing field?

Notwithstanding the fact that Kisor is a SCOTUS decision and therefore binding on all lower courts, in a recent SNF appeal involving Life Care Center-Kirkland, the ALJ wrote, “Kisor applies only to the federal courts and has no application to my decision-making.” It remains to be seen if that view prevails. Clearly, it would not in any federal court.

In another case involving Golden Living Centers, the US Court of Appeals for the Sixth Circuit refused to afford deference to CMS’ interpretation of its regulations. Quoting Kisor, it noted, “Deference is not the answer to every question of interpreting an agency’s rules. Far from it…. The possibility of deference can arise only if a regulation is genuinely ambiguous.” 

Kisor and Allina, along with their progeny, provide a hopeful glimpse into the future of SNF appeals. At a minimum, the notion of federal courts yielding unquestioning deference to agency interpretations of their regulations is waning. 

Providers want — and deserve — to have an impartial and level playing field when they legitimately challenge CMS’ enforcement actions. Only time will tell how much these recent cases will impact providers’ enhanced opportunity to prevail at appeals. Stay tuned, the issue has already been briefed and is currently before the board with future federal court review likely.

Alan C. Horowitz is of counsel to Arnall Golden Gregory’s Healthcare practice and a member of the Post-Acute & Long-Term Care industry team. He is an innovative healthcare lawyer handling complex regulatory issues concerning Medicare providers such as skilled nursing facilities, hospices and home health agencies.

The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.