The Avon Nursing Case: A Lesson in Challenging Medicaid Rulemaking for Providers

Hello Everyone! My name is Tyrus Jackson and I am one of the summer associates for the Healthcare practice at Foley Hoag. I just finished my 2L year at the George Washington University Law School and have my MPH from GW’s School of Public Health.

Medicaid providers seeking to directly challenge HHS rulemaking recently found success in the 2nd Circuit. In the recent case of Avon Nursing & Rehab v. Becerra, the court sided with a skilled nursing home provider bringing a pre-enforcement challenge to a CMS final rule, finding that Medicare’s procedural hurdles to a direct legal challenge do not apply to challenges under the Medicaid Act. In this case, Avon Nursing (a skilled nursing facility eligible to operate under both the Medicare and Medicaid programs) raised a challenge against CMS in regard to their final rule setting policy for Medicare and Medicaid skilled nursing facility survey or inspection teams. As required by both underlying Medicare and Medicaid statutes, registered nurses are generally required on CMS survey or inspection teams when conducting facility visits. After Avon Nursing had an incident where a resident burned herself after spilling soup on her lap, a survey team of two dieticians conducted an abbreviated survey of the nursing facility. This survey team later imposed a penalty on Avon, as they found Avon not in substantial compliance with Medicare participation requirements.

In the interim, on August 4, 2017 CMS published in the Federal Register a final rule for skilled nursing facilities adopting, among other policies, a rule that certain surveys teams did not need to include registered nurses.  After this, Avon Nursing and other providers brought a challenge stating that CMS’ final rule was arbitrary and capricious in violation of the Administrative Procedure Act (APA), on the basis that the Medicaid statute explicitly states that survey teams must include a registered nurse. The government argued that the text was ambiguous and therefore open to their interpretation. The District Court didn’t address this issue though. They instead dismissed the case by concluding that it lacked subject-matter jurisdiction based on two procedural provisions incorporated into the Medicare Act: (1) claim channeling and (2) jurisdiction stripping. Medicare’s claim-channeling provision requires a provider that does not agree with the Secretary’s determination to exhaust its administrative remedies before going to court. Medicare’s jurisdiction-stripping provision means that no claim can be brought against the United States or any officer or employee of the United States unless the claim-channeling procedures are followed.  In other words, Avon Nursing would first need to proceed through Medicare’s administrative processes and could not bring a pre-enforcement challenge to the 2017 final rule.

When the 2nd Circuit reviewed this case, it noted that the Medicaid Act does not have the same claim channeling and jurisdiction stripping provisions as the Medicare Act and therefore courts have jurisdiction to review. The court went on to state that Congress intended judicial review of administrative actions unless the agency can show that Congress prohibited all judicial review of the agency’s compliance based on a statute. The Court further stated that Congress had acted intentionally and purposefully in the excluding the claim-channeling and jurisdiction-stripping provision from the Medicaid Act. Because Avon Nursing and the other plaintiffs were participants in both Medicare and Medicaid programs, the government argued that the Medicaid Act doesn’t provide an independent basis for jurisdiction for claims that are non-justiciable under Medicare. The Court disagreed and stated that the 2017 final rule did not divest the claim under Medicaid. The 2nd Circuit noted that it would only find the claim to fall exclusively under Medicare’s claim channeling and jurisdiction stripping provisions if  the sole basis for the claim was under the Medicare Act, or if it was inextricably intertwined with Medicare. The Court thus ruled that Avon Nursing could bring a pre-enforcement challenge to the rule and was not barred by any provision of the Medicare Act.

This case opens the door to allow future pre-enforcement suits by healthcare organizations against the government in regards to rulemaking under the Medicaid Act.

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