SCOTUS Decision Sets Stage for Nursing Homes to Challenge Civil Monetary Penalties but Such Litigation Is Likely Too Costly

The U.S. Supreme Court’s June decision regarding civil monetary penalties (CMPs), which allows defendants the right to present their case to a federal jury when a federal agency is seeking financial penalties, may seem like a win for nursing homes at first glance. However, many providers are unlikely to pursue this path.

The CMP decision stemming from the Securities and Exchange Commission (SEC) v. Jarkesy case may be seen as a step toward curtailing stringent policies for nursing homes and others in health care – or at least reduce federal leverage to extract high-dollar settlements – but that’s only true in theory. Leaders in the space told Skilled Nursing News that operators must weigh the costs and time of litigation in getting CMPs annulled against simply absorbing the cost of the CMP. And in the end, the hassle and price to get CMPs removed might not be worth it.

Granted, the decision could be another reason for litigation to spike, as nursing home operators and other industry entities might see it as an incentive to challenge CMPs in court, as well as the authority of the agency.

Steve LaForte, chief legal officer and executive vice president of corporate affairs for Idaho-based Cascadia Healthcare, believes movement with the Chevron decision, and now this decision on CMPs, could be considered a shift toward favoring industries rather than government agencies in court.

“The makeup of the court – the six to three majority – really weighs in a more libertarian direction, with less government authority,” added LaForte. 

However, the problem is that the Chevron decision overturned 40 years of administrative processes, and there isn’t an avenue to efficiently address this change, at least not without substantial costs.

“I think that there was a time when Congress could deal with it in a more proactive way, and strengthen statutes so they were more defined as to how the process works. But I don’t think that’s possible now because we have complete political dissonance,” said LaForte.

There likely won’t be any bipartisan, middle-of-the-road agreement on how to balance the scales, and the courts aren’t equipped to truly absorb all of the activity that the SCOTUS decision will generate, he said. 

“It’s not necessarily a productive use of resources, and certainly not a sustainable use of resources for a sector that operates on the thin margins that we do,” said LaForte.

For Cascadia, there have been times where leaders sat down in a room and wondered if they should challenge certain citations, especially with Washington and Idaho being really difficult survey states, he said.

Cascadia operates 58 facilities across five western states.

Good in theory

Complications stemming from an unclear administrative process aside, the Chevron decision does empower operators to challenge CMPs, as it undercuts the Centers for Medicare & Medicaid Services’ (CMS) exercise of authority, with implications to reduce the punitive nature of some of the policies. 

The decision has provided an avenue for operators to challenge CMPs more actively, LaForte said.

“On the other hand, it’s a double-edged sword … it really throws things up in the air in terms of how enforcement of CMPs is going to shake out,” noted LaForte. It will be difficult to effectively use as well, given that it is tied to costly litigation, he said. 

All said, at least for Cascadia, the effort to challenge CMPs isn’t worth it.

“It really comes down to time and resources. You can’t get there, even though on principle you’d like to do it, and on principle, you see a pathway to be successful, but it’s just that the time and the resources that it takes to get there undercut making it worthwhile,” said LaForte.

Brian Ellsworth, vice president for public policy and payment transformation with Health Dimensions Group (HDG), echoed LaForte’s thoughts on costly litigation, adding that litigation ultimately creates more risk for facilities, money that can be better spent on investing in systems of care and systemic quality improvement.

As for LaForte, while he’d love to see operators go “full throttle” challenging CMPs in court, the money simply isn’t there, he said. 

Moreover, time is also a reason for operators to hesitate before launching any litigation on CMPs. After all, it usually takes 18 months to three years of time for a decision to be reached, added LaForte.

CMPs, litigation and consolidation

LaForte said the skilled nursing industry is experiencing an interesting moment of change, with consolidation continuing, although not necessarily at a national level. The cost of compliance is high, and smaller operators unable to fight back against CMPs will likely be folded into large regional operators such as Cascadia.

Operators with less than 20 buildings don’t have enough scale to adequately have compliance in place, and the cost of imperfect compliance with CMPs is even higher. Mom-and-pops and smaller operators will find it hard to amortize those costs over a modest portfolio. 

It could be a way for law firms to generate business, he said, if operators fight CMPs in court, but having outside legal resources is a difficult model to maintain for operators, again because the costs are so high.

Looking ahead, associations are pressing CMS to put more time and resources into incentivizing nursing homes rather than imposing fines. It remains to be seen if the SCOTUS decision will play a role in a potential shift toward collaboration.

The American Health Care Association and National Center for Assisted Living’s outgoing CEO and president Mark Parkinson has said that CMPs divert critical resources away from necessary improvements, imposing fines without providing constructive support for residents. Meanwhile, fines don’t address root causes either.

“Excessive fines run the risk of pushing nursing homes already on the financial brink to closure, uprooting residents and staff, and putting unnecessary stress on family members as they search for new solutions for their loved ones’ care,” Parkinson said in a statement.