The HHS Departmental Appeals Board ruled recently on a case involving a nursing home's application for payment of its legal fees incurred in defending itself against CMS-imposed remedies. The nursing home was successful in its application for the recovery of attorney's fees based on CMS's insistence on the imposition of a civil money penalty as a result of a survey deficiency that was ultimately rescinded after informal dispute resolution. This case is instructive for nursing homes in assessing whether the costs they incur in defending themselves in enforcement appeals could be recoverable under the Equal Access to Justice Act (EAJA).

Under the EAJA, any federal agency which participates in an adversarial adjudication must award to an eligible prevailing party "fees and other expenses incurred by that party in connection with that proceeding, unless the adjudicative officer of the agency finds that the position of the agency was substantially justified or that special circumstances make an award unjust." 5 U.S.C. § 504(a)(1). Accordingly, to recover attorneys' fees under the EAJA, you must have an adversarial adjudication; the moving party, the facility, must have prevailed in that adjudication; and upon request, the officer of the agency must award the fees absent a finding that the position of the agency was substantially justified or that other special circumstances make an award unjust. Not surprisingly, the request to obtain such fees typically involves a further dispute over whether the agency's position was substantially justified.

Although the EAJA does not define the term substantially justified, the implementing regulations define it as "reasonable in law and fact." 45 C.F.R. § 13.5(b)(1). A substantial justification finding must be based on the administrative record as a whole; the moving party's status as the prevailing party does not necessarily create a presumption that the agency's position was substantially unjustified. Nevertheless, when a non-governmental entity prevails in an adversarial proceeding, the governmental entity then has the burden of proving that its position was substantially justified.

Park Manor Facts
Park Manor is a nursing facility in Wisconsin that participates in the Medicare Program. In March of 2001, the facility underwent an annual survey in which the state surveyors determined that it was not in substantial compliance with the requirements of participation. As a result, CMS imposed civil money penalties based on the surveyors' findings. The state conducted a resurvey visit in June, during which the surveyors identified further and continuing deficiencies. As a result of this survey, CMS continued a per-day civil money penalty that it had imposed as a result of the findings of the annual survey.

The facility requested informal dispute resolution (IDR) from the state with regard to the findings from the June survey. As a result of the IDR process, the state rescinded the majority of deficiencies cited in the June survey. In particular, it rescinded the deficiency upon which CMS had imposed a continuing per-day CMP. Nevertheless, CMS did not withdraw imposition of the CMP.

Analysis
The Park Manor case makes it abundantly clear that a nursing home's appeal of the imposition of a civil money penalty or other remedy under CMS's enforcement authority of the Medicare and Medicaid requirements for participation constitutes an adversarial adjudication under the EAJA. The fact that Park Manor was the prevailing party shifted the burden to CMS to establish that its position in maintaining the CMP was substantially justified or that special circumstances would make an EAJA award unjust.

In this case, the Departmental Appeals Board (DAB) was reviewing an Administrative Law Judge's (ALJ) decision on Park Manor's application for fees under the EAJA. The DAB found that the ALJ's analysis of the substantial justification factors did not comply with the applicable requirements of the EAJA. In particular, it found that the ALJ focused only on CMS's position in making its determination that Park Manor was not in compliance with the conditions of participation, failing to evaluate Park Manor's opposing evidence. The DAB noted that the statute and regulations of the EAJA require an adjudicative officer to evaluate the agency's position in light of the entire administrative record, which necessarily includes any available rebuttal evidence to the agency's position.

CMS took the position that Park Manor was subject to the per-day CMP based on the June revisit despite the fact that the deficiencies were subsequently removed at IDR. The DAB found that the CMP was not substantially justified and there were no special circumstances that would make an award to Park Manor unjust. CMS's position in defense of its decision to impose the CMP despite the deficiency's removal was that CMS had "never adopted" the survey agency's decision to rescind the deficiency. CMS indicated, for the first time in the EAJA proceeding, that it rejected the state IDR determination regarding the removal of the deficiency and rejected the finding that Park Manor was in substantial compliance as of the June revisit. In the underlying hearing on the imposition of the CMP, the ALJ in that case had found that while CMS had the authority to overrule the IDR determination, it had failed to show that an employee with proper authority had done so and, as a result, the ALJ granted summary judgment to Park Manor with respect to the CMP. Consequently, in its EAJA application, Park Manor relied on the summary judgment ruling in its favor to support its entitlement to an award.

The DAB noted that CMS had the burden to show that substantial justification existed for pursuing its position. CMS argued that the ALJ's decision below was a "procedural ruling." However, CMS failed to explain why that would make a difference in an EAJA request or how it was significant. In its analysis, the DAB noted that even if CMS had the authority to overrule a state IDR determination, that ability does not automatically mean that CMS properly exercised such authority or had a reasonable basis for doing so. The DAB further noted that CMS failed to make any reasonable case for defending against the summary judgment motion in the case below after learning the IDR results.

CMS also took the position that IDR results are only "tentative" until they are "formally adopted" by CMS, which CMS argued it never did in Park Manor's case. However, the DAB noted that CMS could not point to "anything in the regulation supporting the view that IDR results are contingent on CMS adopting them." Significantly, the DAB went on to speculate that even if CMS had followed the proper procedures to overrule the IDR results, that alone would not have been sufficient for CMS to have met its burden to show that it had a reasonable basis for sustaining its position.

The DAB also evaluated whether "special circumstances" would make an award to Park Manor unjust. CMS apparently made several arguments why an award would be unjust, including the fact that Park Manor had rejected a settlement offer, that it unnecessarily expanded the scope of litigation by filing an excessive number of affidavits and hearing transcripts, and it unjustifiably withheld state proceeding transcripts from CMS.

The DAB characterized CMS's arguments as being based on the "unclean hands theory," which is usually invoked to bar relief to a party that is itself engaged in unlawful or inappropriate conduct. The DAB found no special circumstances that would justify denying the award. The alleged misconduct that CMS described had no direct relationship to the appeal of the remedies based on the June revisit survey. The DAB further rejected any suggestion that Park Manor's refusal to settle was a special circumstance, noting that Park Manor had the statutory right to contest the CMP and that it might have many reasons for going forward with a hearing, including avoiding adverse publicity and removing deficiencies from the compliance record.

Conclusion
Park Manor's efforts to obtain recovery for its litigation costs in pursuing an illegally imposed CMP is instructive for other providers in assessing whether their efforts at challenging CMS's enforcement determinations might warrant an EAJA action. Although many factors are involved in an award under the EAJA, if a provider believes that CMS took an unjustified position in pursuing a remedy against it and the provider prevails at hearing, the litigation costs might be recoverable. The facts of any situation should be carefully reviewed with counsel and the possibility of such an action should at least be considered.