Salas v. Grancare, Inc., No. 99CA0089 (Colo.App. 01/04/2001)
|||COLORADO COURT OF APPEALS
|||January 4, 2001
|||GEORGE SALAS, INDIVIDUALLY AND AS PERSONAL REPRESENTATIVE OF THE ESTATE
OF DELLA SALAS, DECEASED; NORMA P. DOUGHERTY, BY AND THROUGH HER NEXT FRIEND
AND DAUGHTER LUANNA CLAPPER; LUANNA CLAPPER, INDIVIDUALLY AND AS PERSONAL
REPRESENTATIVE OF THE ESTATE OF FRANK LYNN DOUGHERTY, DECEASED; LYDIA B.
DILL, BY AND THROUGH HER NEXT FRIEND AND DAUGHTER JOYCE LANG, ON BEHALF
OF THEMSELVES AND OTHERS SIMILARLY SITUATED,
GRANCARE, INC., AND AMS PROPERTIES, INC., D/B/A CEDARS HEALTH CARE CENTER, INC.,
|||City and County of Denver District Court No. 96CV4449 Honorable Morris
B. Hoffman, Judge
|||Feiger & Collison, P.C., Lynn D. Feiger, Madeline A. Collison, Joan
M. Bechtold, Brian T. Moore, Denver, Colorado; Roberts & Zboyan, P.C.,
Thomas L. Roberts, Denver, Colorado, for Plaintiffs-Appellants White and
Steele, P.C., Thomas B. Quinn, Denver, Colorado; Preston & Cowan, Llp,
Paul G. Preston, New Orleans, Louisiana, for Defendants-Appellees Gill Deford,
Willimantic, Connecticut, for Amicus Curiae Center for Medicare Advocacy
Dorothy Siemon, Sarah Lenz Lock, Bruce Vignery, Michael Schuster, Washington,
D.C., for Amicus Curiae Aarp Foundation
|||The opinion of the court was delivered by: Judge Marquez
|||JUDGMENT REVERSED AND CAUSEREMANDED WITH DIRECTIONS
|||Hume, C.J., and Dailey, J., concur
|||In this class action, plaintiffs, George Salas, Norma P. Dougherty, Luanna
Clapper, and Lydia B. Dill, on behalf of themselves, their decedents, and
others similarly situated, appeal the judgment dismissing their claims against
defendants, Grancare, Inc. (Grancare), and AMS Properties (AMS), d/b/a Cedars
Health Care Center, Inc (Cedars), on the ground that the trial court lacked
jurisdiction because of plaintiffs' failure to exhaust administrative remedies.
We reverse and remand for further proceedings.
|||AMS owns, operates, and manages Cedars, a nursing home in Lakewood. Plaintiffs
(or their decedents) are current and former residents of Cedars. Before
providing services to plaintiffs, Cedars entered into separate resident
admission agreements with each of them. The agreements indicate that Cedars
participates in the Medicare program, see 42 U.S.C. §1395, et seq. (1994)(Medicare
Act), and that Medicare coverage is established by federal guidelines. The
agreements also indicate that Cedars participates in the Medicaid program,
see 42 U.S.C. §1396, et seq. (1994)(Medicaid Act), and provides Medicaid
beneficiaries with all services required by law.
|||Dissatisfied with Cedars' services, plaintiffs filed this action, claiming
that they had received and continue to receive inadequate care and services,
including: 1) medical and nursing services that are inadequate to promote
the maintenance or enhancement of the quality of life of each resident;
2) care that does not currently comply with state and federal regulations;
3) an unclean, unsanitary, and unsafe environment; 4) an overworked and
underpaid staff; 5) the improper use of physical and chemical restraints;
and 6) other improper care.
|||Plaintiffs asserted the following claims for relief: 1) third-party beneficiary
claim for breach of Medicaid/Medicare contracts (against all defendants);
2) breach of contract (against all defendants); 3) intentional interference
with contractual obligations (against GranCare); 4) fraudulent misrepresentation
(against all defendants); 5) negligence per se (against all defendants);
and 6) violation of the Colorado Consumer Protection Act, §6-1-101, et seq.,
C.R.S. 2000 (CCPA)(against all defendants) on behalf of the named plaintiffs
only. Plaintiffs' third amended complaint sought restitution, compensatory
damages including emotional distress damages, statutory damages under the
CCPA, and declaratory and injunctive relief.
|||Following a hearing on the issue of class certification, the trial court
defined one class and two subclasses. As part of its class certification
order, the court found that plaintiffs seek a refund of the amounts that
they paid, or that were paid on their behalf, while they were residents
at Cedars and that they do not seek damages for any individual physical
harm they may have suffered as a result of this alleged mistreatment. The
court concluded that the third-party beneficiary, breach of contract, tortious
interference, fraud, and negligence per se claims should proceed as class
claims on liability and restitution only. It also struck plaintiffs' request
for declaratory and injunctive relief.
|||Defendants then filed a motion to dismiss all of plaintiffs' claims asserting,
inter alia, that the trial court lacked jurisdiction under the applicable
state and federal statutes to hear disputes involving Medicare and Medicaid.
Defendants also filed a motion for summary judgment precluding recovery
of Medicaid funds.
|||The trial court concluded after a hearing that some of plaintiffs' claims
arose under the Medicare and/or Medicaid Acts and had to be dismissed for
failure to exhaust administrative remedies. It also concluded that plaintiffs
could not recover restitution in their tort claims for tortious interference,
fraud, or negligence per se. The court disagreed with defendants that the
remedy of restitution was not available to plaintiffs on their contract-based
claims and held that those claims had not been waived. It also rejected
defendants' argument that the CCPA did not apply to the allegations in this
|||The court then dismissed for lack of jurisdiction the claims of all plaintiffs
who were at all times Medicare or Medicaid patients and who did not contribute
any of their own private funds toward their care. It concluded, however,
that the remaining plaintiffs could seek restitution and damages for emotional
distress only for the period beginning with their stay at Cedars and ending
when they first received any Medicare or Medicaid benefits. Under the order,
no restitution was to be available on the claims for tortious interference,
fraud, and negligence per se.
|||The court subsequently certified as a final judgment pursuant to C.R.C.P.
54(b) that portion of its order dismissing for lack of jurisdiction all
the claims of plaintiffs who were at all relevant times Medicare or Medicaid
patients. The certification did not encompass any other portions of the
order and specifically did not encompass part III of the order ruling that
remaining plaintiffs could not proceed with restitution on their tortious
interference, fraud, and negligence per se claims. Those rulings not certified
pursuant to C.R.C.P. 54(b) are not before us in this appeal.
|||Plaintiffs appealed the court's judgment, but the appeal was automatically
stayed when defendants filed a suggestion of bankruptcy. The United States
Bankruptcy Court for the District of Delaware later entered an order modifying
the stay for the purpose of allowing plaintiffs to proceed with their appeal.
Subsequently, the appeal was recertified for our review.
|||At oral argument, plaintiffs' counsel stated that all of their claims
had been dismissed. However, our review of the trial court's order indicates
that the court rejected defendants' arguments that plaintiffs could not
proceed with their contract-based claims and that plaintiffs' claims under
the CCPA were precluded. Thus, our understanding of the court's order is
that plaintiffs' claims for breach of contract and violation of the CCPA
were not dismissed and remain subject to further proceedings in the trial
court. Consequently, only plaintiffs' tort claims are at issue on appeal.
Further, the plaintiffs before this court are limited to those who were
at all relevant times Medicare or Medicaid patients.
|||I. Failure to Exhaust
|||Plaintiffs contend that they were not required to exhaust administrative
remedies under the Medicare or Medicaid Acts before they could proceed on
their tort claims. We agree.
|||A. Standard of Review
|||Motions to dismiss under C.R.C.P. 12(b)(5) for failure to state a claim
are viewed with disfavor. Dunlap v. Colorado Springs Cablevision, Inc.,
829 P.2d 1286 (Colo. 1992). When reviewing such a motion, a court must accept
as true the allegations of the complaint, under any theory of law, and determine
whether the plaintiff is entitled to relief. Rosenthal v. Dean Witter Reynolds,
Inc., 908 P.2d 1095 (Colo. 1995). It is appropriate to grant the motion
only if there is no set of facts that the plaintiff could prove upon which
relief could be granted. McIntosh v. Board of Education of School District
No. 1, 999 P.2d 224 (Colo. App. 2000).
|||Summary judgment is a drastic remedy that is warranted only on a clear
showing that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law. AviComm, Inc.
v. Colorado Public Utilities Commission, 955 P.2d 1023 (Colo. 1998). Appellate
review of a judgment granting a motion for summary judgment is de novo.
Aspen Wilderness Workshop, Inc. v. Colorado Water Conservation Board, 901
P.2d 1251 (Colo. 1995).
|||Although the trial court addressed both motions, it did not distinguish
the standards applied and essentially treated the questions presented as
questions of law. Because defendants do not contest the factual allegations
of the complaint and because it does not appear that there are any disputed
issues of material fact, we proceed on the same basis.
|||B. Statutory Framework for Exhaustion Requirement
|||The doctrine of exhaustion of administrative remedies serves as a threshold
to judicial review and requires parties in a civil action to pursue available
statutory administrative remedies before filing suit in district court.
If the parties fail to satisfy the exhaustion requirement, the court is
without jurisdiction to hear the action. State v. Golden's Concrete Co.,
962 P.2d 919 (Colo. 1998).
|||Here, in concluding that plaintiffs were required to exhaust their administrative
remedies, the trial court relied on the implementing regulations and comprehensive
substantive standards of the Medicare and Medicaid Acts governing a patient's
care. Thus, we turn to a review of those standards.
|||1. Federal Statutes
|||Medicare is a federally-funded program, administered by the Department
of Health and Human Services (HHS), that provides insurance benefits for
persons 65 or older and for disabled individuals by making payments to health
care providers. See 42 U.S.C. §1395, et seq.
|||Medicaid is a jointly-funded federal and state program that pays for health
care services provided to needy individuals. See 42 U.S.C. §1396, et seq.
If a state chooses to participate in the Medicaid program and complies with
the requirements of the Medicaid Act, the federal government provides funds
that partially reimburse the state for payments to or on behalf of persons
whose income and resources are insufficient to meet the costs of necessary
|||To participate in the Medicare and Medicaid programs, a nursing home must
comply with health, safety, and administrative standards established by
statute, see 42 U.S.C. §§1395i-3(a)-(d) & 1396r(a)-(d), and the implementing
regulations set forth in 42 C.F.R. part 483, subpart B. See Michigan Ass'n
of Homes & Services for the Aging, Inc. v. Shalala, 931 F. Supp. 1338
(E.D. Mich. 1996).
|||The Medicare and Medicaid Acts are read as part of the Omnibus Reconciliation
Act of 1987, 42 U.S.C. §§1395i-3 and 1396r. Congress passed the Nursing
Home Reform Law (NHRL), 42 U.S.C. §1396r, in 1987 as part of the Omnibus
Act. Under the NHRL and implementing regulations, standards were imposed
on participating nursing homes regarding patient care. These included procedures
for survey, certifications, and administrative review, and provisions for
sanctions. See generally Boerstler & Nolte, Colorado Nursing Homes:
Litigation and Public Policy Issues Concerning Abuse and Neglect, 29 Colo.
Law. 93 (Sept. 2000)(discussing regulation of nursing homes and the case
at issue here).
|||The Medicare Act incorporates by reference the judicial review provisions
of the Social Security Act, 42 U.S.C. §§405(g) and 405(h)(1998). 42 U.S.C.
§1395cc(h)(1). Section 405(g) is the sole avenue for judicial review for
all claims arising under the Medicare Act. Heckler v. Ringer, 466 U.S. 602,
104 S.Ct. 2013, 80 L.Ed.2d 622 (1984).
|||In relevant part, §405(g) provides that:
|||Any individual, after any final decision of the Commissioner of Social
Security made after a hearing to which he was a party . . . may obtain a
review of such decision by a civil action commenced within sixty days .
. . or within such further time as the Commissioner of Social Security may
allow . . . . The findings of the Commissioner of Social Security as to
any fact, if supported by substantial evidence, shall be conclusive. . .
. (emphasis added)
|||Facilities, such as Cedars, found to be out of compliance with Medicare
requirements are subject to sanctions, which
|||include the denial of payment for Medicare patients, the imposition of
civil money penalties of up to $10,000 per day, or the termination of the
facility's participation in Medicare. 42 U.S.C. §§1395i-3(h) & 1396r(h).
The statute gives the Secretary of Health and Human Services great discretion
to fashion remedies, stating that: "Nothing in this subparagraph shall
be construed as restricting the remedies available to the secretary to remedy
a . . . facility's deficiencies." 42 U.S.C. §1395i-3(h)(2)(A).
|||Medicaid, unlike Medicare, does not incorporate the exhaustion requirements
of 42 U.S.C. §§405(g) and 405(h). However, because Medicaid is a program
implemented by the federal and state governments jointly, state-imposed
administrative remedies come into play. See Wagner v. Sheltz, 471 F. Supp.
903 (D. Conn. 1979); Medicaid, Program Integrity, Department of Health &
Rehabilitation Services v. Conval-Care, Inc., 636 So. 2d 117 (Fla. App.
|||2. State Statutes
|||In pertinent part, the Medicare and Medicaid Acts both provide that:
|||The State shall provide, through the agency responsible for surveys and
certification of nursing facilities . . . for a process for the receipt
and timely review and investigation of allegations of neglect and abuse
. . . . 42 U.S.C. §§1395i-3(g)(1)(C) & 1396r(b)(1)(C).
|||Pursuant to this mandate, Colorado adopted §25-1-120, et seq., C.R.S.
|||Under §25-1-120(3)(d), a nursing facility resident may formally complain
about any conditions, treatment, or violations of his or her rights. This
section also provides that complaints are to be submitted to the designee
of the facility. If the resident is dissatisfied with the findings and remedies,
he or she may then present the same grievance orally or in writing to a
grievance committee. Section 25-1-120(3)(e). If still dissatisfied with
the findings and remedies of the committee, the complainant may file the
same grievance with the Colorado Department of Public Health and Environment
(DPHE) executive director. Section 25-1-120(5).
|||Also, Colorado has enacted §25-1-107.5(4)(c), C.R.S. 2000, which provides
in pertinent part that the DPHE may distribute funds to pay costs to relocate
residents to other facilities or to "[r]eimburse residents for personal
|||C. "Arising Under"
|||In order for the Medicare exhaustion requirements to apply, a claim must
arise under the Medicare Act. While only Medicare uses the term "arising
under," see §42 U.S.C. 405(h), with certain exceptions, we agree with
courts in other jurisdictions that administrative remedies must also be
exhausted before bringing a claim that arises under Medicaid. See Wagner
v. Sheltz, supra; MacLeod v. Miller, 44 Colo. App. 313, 612 P.2d 1158 (1980);
Medicaid, Program Integrity, Department of Health & Rehabilitation Services
v. Conval-Care, Inc., supra.
|||A claim "arising under" the Medicare Act includes any claim
in which both the standing and the substantive basis for the presentation
of the claim is the Act. A claim may arise under the Act when it is inextricably
intertwined with a claim for benefits. Heckler v. Ringer, supra.
|||However, cases addressing exhaustion of administrative remedies in this
area chiefly involve requests for reimbursement of benefits brought by individuals
seeking coverage for benefits or expenses claimed under the Medicare or
Medicaid Acts. See Heckler v. Ringer, supra; Redmond v. Secure Horizons,
Pacificare, Inc., 70 Cal. Rptr. 2d 174 (Cal. Ct. App. 1997). Here, plaintiffs
do not seek that form of reimbursement in connection with their common law
tort claims. Instead, as we interpret their position in the trial court
and in this court, plaintiffs seek to recover monies paid by them or on
|||Thus, plaintiffs are not requesting payment of benefits or reimbursement
for a denied coverage under either the Medicare or Medicaid Acts. Nor are
their claims inextricably intertwined with a claim for benefits. See Plocica
v. Nylcare of Texas, Inc., 43 F. Supp. 2d 658 (N. D. Tex. 1999); Zamora
- Quezada v. Healthtexas Medical Group, 34 F. Supp. 2d 433 (W. D. Tex. 1998).
|||Consequently, even if we assume that plaintiffs' claims are based to some
extent on the Medicare and Medicaid Acts, and in that sense "arise
under" those Acts, the remedy they seek is not available through Medicare's
or Medicaid's administrative processes. Resort to administrative processes
would have been futile, and could not operate as a precondition for plaintiffs'
suit here. See Golden's Concrete Co., supra. Accordingly, the court erred
in dismissing their claims on this ground.
|||Whether plaintiffs are entitled to the remedy they seek presents a different
question. Because the trial court's C.R.C.P. 54(b) certification order did
not encompass its ruling that the remaining plaintiffs could not proceed
with restitution, we do not address the appropriateness of restitution as
|||II. Other Contentions
|||In view of our disposition above, we do not address plaintiffs' contention
that, because their complaint is not against the Secretary of Health and
Human Services or her employees or agents, they are not required to exhaust
|||Accordingly, the judgment as it pertains to the issues certified for review
is reversed, and the cause is remanded for further proceedings.
|||CHIEF JUDGE HUME and JUDGE DAILEY concur.
The Law, Science & Public
Health Law Site
The Best on the WWW Since 1995!
Copyright as to non-public domain materials
See DR-KATE.COM for home hurricane and disaster preparation
See WWW.EPR-ART.COM for photography of southern Louisiana and Hurricane Katrina
Professor Edward P. Richards, III, JD, MPH - Webmaster