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Jeanes Hospital v. Sibelius

September 28, 2010


The opinion of the court was delivered by: Rufe, J.


Plaintiff Jeanes Hospital brings this action under the Medicare Act, 42 U.S.C. § 1395 et seq., which provides for judicial review of final administrative decisions concerning disputed claims for Medicare reimbursement. Plaintiff seeks monetary and declaratory relief under the health-costs-reimbursement program of Title XIII of the Social Security Act ("Medicare")*fn1 for losses allegedly sustained on the sale of its assets. Currently before the Court are Plaintiff's second Motion for Summary Judgment and Defendant Kathleen Sibelius, Secretary of Health and Human Services's ("Agency", "Secretary", or "Defendant") second Cross-Motion for Summary Judgment.*fn2


In November 1995, the principals of legacy Jeanes Hospital entered into an Affiliation Agreement with Temple University Health System, Inc. ("TUHS"), which called for the merger of legacy Jeanes Hospital into a newly-formed entity, Temple Central Hospital, Inc. ("TCH", a subsidiary of TUHS), later renamed Jeanes Hospital.*fn3

Following the merger, Jeanes Hospital filed a "terminating cost report" with Defendant's Centers for Medicare and Medicaid Services ("CMS") for the year ending June 30, 1996, claiming entitlement to reimbursement from Medicare for a "loss-on-sale" in the merger and depreciation payments for fiscal year 1996 and earlier years totaling $16,338,246.*fn4 Medicare's fiscal intermediary, Mutual of Omaha Insurance Company (the "Intermediary"), applying relevant statutory regulations, issued a Notice of Amount of Medicare Program Reimbursement ("NPR") denying Jeanes Hospital's claimed loss.*fn5

This case arises out of Jeanes Hospital's claim for the additional Medicare payments allegedly resulting from the depreciation of its assets as a result of the merger.

Jeanes Hospital appealed the NPR to Defendant's Provider Reimbursement Review Board ("PRRB"). The PRRB held an evidentiary hearing on July 1, 2002, and ultimately rejected the Intermediary's decision and upheld Jeanes Hospital's claim.*fn6 The Administrator then reviewed the PRRB's decision under 42 C.F.R. § 405.1875(a) and on November 25, 2003, reversed the PRRB's opinion.*fn7 Jeanes Hospital subsequently appealed to this Court on January 28, 2004 pursuant to the Administrative Procedures Act ("APA"), 5 U.S.C. §§ 551-59, and both parties timely filed motions for summary judgment.

On September 29, 2006, the Court issued a Memorandum Opinion and Order, granting Plaintiff's Motion for Summary Judgment in part and denying Defendant's cross-motion for summary judgment. A more complete recitation of the factual history of this case was established in the Court's September 29 th Memorandum Opinion, which is hereby fully incorporated herein. In its Memorandum Opinion, the Court found, in part, that:

Both the Intermediary and Administrator concluded that "since the parties to this transaction are related...the transaction was not consummated through an arm's length transaction"...based on the reasoning that a bona fide sale cannot occur in a related-party transaction. No further analysis of the merger is required after finding the merger to be a related-party transaction, and thus, neither the Intermediary nor the Administrator performed the appropriate financial analysis on the Jeanes Hospital merger. In view of this Court's holding that the Jeanes Hospital merger was an unrelated-party transaction, however, the Administrator's review and analysis is incomplete. Instead, the transaction must be analyzed to determine whether it involved an "arm's length transaction . . . for reasonable consideration...."*fn8

Accordingly, the Court retained jurisdiction over this matter and remanded the case to the Administrator for further proceedings and fact finding on the limited issue of whether the Jeanes Hospital merger qualified as a bona fide sale.*fn9

On February 28, 2007, in response to the Court's remand, the Administrator remanded the issue to the PRRB "to determine whether the Jeanes Hospital merger was a bona fide sale." The PRRB held a hearing on this issue on October 30, 2007. On May 27, 2009, the PRRB issued a decision that upheld Jeanes Hospital's claim. On July 28, 2009, however, the Administrator overturned the PRRB's decision, finding that the transaction was in fact not a bona fide sale, and disallowed Jeanes Hospital's claim for payment from Medicare.*fn10

Specifically, the Administrator found that: (1) although the legacy Jeanes Hospital Board negotiated with TUHS, those negotiations did not concern the price of the assets, but related to the commitments TUHS would make on behalf of the newly formed Jeanes Hospital; (2) the Board's motivation was not to obtain the best purchase price for the hospital's assets, but instead to define the mission of the new Jeanes Hospital and ensure their continued participation in the management of the hospital; (3) the Board's efforts to obtain benefits for the new Jeanes Hospital, and not for themselves, demonstrated that they were not pursuing their own economic self-interest; and (4) Jeanes Hospital transferred assets with substantially greater value than the amount of their supposed consideration. The Administrator determined that these findings conclusively demonstrated that the Jeanes Hospital Board was not motivated to obtain the best possible sales price in the exchange.*fn11

Plaintiff thereafter filed its second Motion for Summary Judgment and Defendant filed its second Cross-Motion and Opposition to Plaintiff's Motion. The limited matter before the Court is whether the Administrator properly determined that the TUHS-Jeanes Hospital Merger did not result in a bona fide sale because the parties did not engage in arm's length negotiations and did not exchange reasonable consideration during the merger. The Court's initial analysis and discussion commemorated in its September 29, 2006 Memorandum Opinion and Order on the issues of whether TUHS and Jeanes Hospital were "unrelated parties" - part one of the bona fide sale analysis - remains unchanged and the parties do not contest the Courts previous findings and conclusions to this effect in their instant Motions. This Memorandum Opinion and Order should be read in conjunction with the Court's aforementioned September 29, 2006 Memorandum Opinion and Order for a full and complete analysis of the underlying issue of whether the TUHSJeanes Hospital merger resulted in a bona fide sale.


Pursuant to the Medicare Act, a healthcare provider must file an annual cost report with its fiscal Intermediary in order to obtain reimbursement for services rendered to Medicare program beneficiaries.*fn12 The Intermediary then determines the amount of the reimbursement and issues a NPR, which informs the ...

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