vs. ) CASE NO. 80-112
Respondent. )
This matter came on for final hearing in Coral Gables, Florida, before the Division of Administrative Hearings by its Hearing Officer, Robert T. Benton II, on August 3, 1981. At the hearing, the parties waived the time for entry of the final order. The Division of Administrative Hearings received the hearing transcript on August 27, 1981. On motion, time for submission of the parties' proposed orders was extended to November 13, 1981. The parties were represented by counsel:
For Petitioner: Edward J. Hopkins, Esquire, and
Michael H. Cook, Esquire Wood, Lucksinger & Epstein
Richard E. Benton, Esquire
For Respondent: Robert A. Weiss, Esquire
$1,175,954 from respondent, together with interest and costs. In its amended petition, filed June 1, 1981, the figure fell to approximately $759,810." Petitioner claims respondent did not adequately reimburse it for Medicaid services it provided during fiscal years ending March 31, 1975, March 31, 1976,
March 31, 1977, March 31, 1978, March 31, 1979, and March 31, 1980. Amended
Petition; T. 18.
On petitioner's motion, the present case was consolidated for hearing with the related rule challenge case, No. 81-1480R, in which petitioner challenged Rule 10C-7.39(5), 1/ Florida Administrative Code, and related policies. The consolidated hearing was first scheduled for July 7, 1981, then continued until
August 3, 1981, at the parties' instance, and upon their written consent and waiver of the 30-day time for the hearing specified by Section 120.56, Florida Statutes (1979).
The parties entered into a lengthy prehearing stipulation dated July 10, 1981, and executed a supplemental prehearing stipulation on August 3, 1981.
These written stipulations, as supplemented by further stipulations made on the record at the time of the final hearing, are the basis for the following
In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original state legislative basis and authority for Florida's entry into the Medicaid program.
Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to:
Enter into such agreement with
other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the
"Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act]
Section 409.266(3), Florida Statutes, as enacted, stated that:
The Department is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Security Amendments of 1965."
No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program.
The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970.
At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS"), has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a(a)(5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida.
Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents,
other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended.
HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing federal regulations and requirements.
As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.)
C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan.
Florida's initial State Plan was approved by HEW effective January 1, 1970.
At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services.
At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a), and (b), 34 Fed. Reg. 1244 (January 25, 1969).
At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x(v)(1)(A); 20 C.F.R. Sections 405.451(c)(2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)].
Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusions of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program.
Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Sections 405.402(b)(2), 405.451(b)(2).
Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42
C.F.R. Section 405.401, et seq.
Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
Attached as an appendix to the recommended order is the form agreement drafted with the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981.
From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto.
The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
The form agreement requires HRS to compute a percentage allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients.
The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends.
The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical.
In drafting the form agreement HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital
services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner:
Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as
applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State
of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period.
Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total
patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period.
To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which might have been due the hospital applicable
to the reporting period. The adjusted inpa- tient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required.
If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment.
If, however, HRS determines that
the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during
the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made;
provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only.
HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services:
a. January 1, 1970 - June 30, 1972 . . .
12 percent
July 1, 1972 - approximately
March 30, 1976 . . . . . . . . . . 9 percent
Approximately March 31, 1976 -
June 30, 1981 . . . . . . . . . . . 6 percent
Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis.
Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends.
HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances."
At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services.
Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards.
In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975.
In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976.
A decision memorandum presented options to the HRS Secretary for reducing the projected deficit.
Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent.
The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends.
HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976.
In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction.
During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance."
In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements.
Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards.
In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of Federal Regulation 45 C.F.R. Section 250.30(a).
A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan").
"Alternative plans" have been permitted under applicable federal regulations since October 21, 1974.
A state participating in the Medicaid program may elect to establish an "alternative plan, but may not implement such "alternative plan" without the prior written approval of HEW.
Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981.
By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid.
HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval.
In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander
Grant & Company, to assist in the formulation of a new "alternative plan" proposal.
In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS.
In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978.
HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980.
In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone:
For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement.
Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than
a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will continue to work with HRS staff to secure Florida compliance re- garding this requirement. Petitioner's Exhibit P-46.
Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions was approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law.
Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152.
In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152), and such "alternative plan" was implemented effective July 1, 1981.
Until July 1, 1981, HRS continued to use the 6 percent "percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by
respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981.
From November 20, 1976, until July 1, 1981--the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital se vices were increasing at an average annual rate in excess of the 6 percent "percentage allowance."
From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its a proved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals-- including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards.
Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards.
PAN AMERICAN HOSPITAL CORPORATION
Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida.
Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended.
At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126.
At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974.
The appendix to this recommended order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients.
At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program.
During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accordance with Medicare cost reimbursement principles and standards.
With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients.
During each of the fiscal periods in dispute in this action, to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards.
With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc., reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted.
On May 3, 1976, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1975, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period in respect to those services. During its fiscal year ended March 31, 1975, petitioner received $86,469 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment.
On February 14, 1979, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1976, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1976, petitioner received $199,328 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment.
On September 29, 1978, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1977, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1977, petitioner received $6,083 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment.
On March 13, 1980, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1978, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1978, petitioner received $178,506 less than its reasonable costs of providing covered
inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment.
On June 30, 1981, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1979, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1979, petitioner received $302,347 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment.
On or about June 30, 1981, the audit of petitioner's Medicaid cost report for the period ending March 31, 1980, was concluded. A formal Notice of Program Reimbursement had not been issued at the time of the hearing.
MOTION TO DISMISS DENIED
Respondent contends that these proceedings should be summarily concluded "for failure to join an indispensable party," viz., the Federal Government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability . . . [See generally] 42
U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This contention must fail for several reasons.
Neither the Division of Administrative Hearings nor the Department of Health and Rehabilitative Services has the power or means to bring an unwilling party into a proceeding instituted pursuant to Section 120.57, Florida Statutes (1979). At most, "the presiding officer may, upon motion of a party, or upon his own initiative enter an order requiring that the absent person be notified of the proceeding and be given an opportunity to be joined as a party of record." Rule 28-5.107, Florida Administrative Code. There exists no administrative writ for joining a non-petitioning party in a substantial interest proceeding in the way judicial process can join a party within a court's jurisdiction in a pending judicial proceeding. The two cases respondent cites in support of its motion, Bannon v. Trammell, 118 So. 167 (Fla. 1928), and Heisler v. Florida Mortgage Title and Bonding Co., 142 So.2d 242 (Fla. 1932), are inapposite, because both cases involve judicial, not administrative proceedings.
HRS does not really seek joinder of the United States Department of Health and Human Services; instead, HRS argues that the petition should be dismissed and the controversy relegated to federal court because it "believes that the Secretary [of the United States Department of Health and Human Services] will not succumb voluntarily to the jurisdiction of the Division of Administrative Hearings." 2/ Motion to Dismiss, p. 3. Participation by the Department of Health and Human Services in the present proceedings would have been welcomed, as the Hearing Officer indicated at the prehearing conference, but neither the Department itself nor either of the parties requested such participation.
In any event, petitioner is seeking additional reimbursement from respondent HRS, not from any federal agency. Medicaid providers like petitioner do not receive any funds directly from the Department of Health and Human Services. Since "[t]he contracts involved are clearly between the hospitals and
[H]RS [, n]o third party requirement appears," Montana Deaconess Hospital v. Department of Social and Rehabilitation Services, 538 P.2d 1021, 1024 (Mont. 1975), and the Department of Health and Human Services is not an indispensable party to administrative proceedings arising out of contracts between HRS and Medicaid providers.
HRS protests that it might find itself making additional reimbursement to petitioner, yet be deprived of the federal component of such expenditures. See 42 U.S.C. Section 1396b. This prospect is an unlikely one in view of the fact that the Department of Health, Education, and Welfare has repeatedly cited HRS for noncompliance because of under-reimbursements to Medicaid providers. If the Federal Government fails to contribute to any additional reimbursement, it would not be for want of a forum in which HRS could present its claim. There are administrative mechanisms within the Department of Health and Human Services, including its Grant Appeals Board. See 42 U.S.C. Section 1116(d). After exhaustion of administrative remedies, HRS would have access to the courts, if necessary. See Georgia v. Califano, 446 F. Supp. 404 (N.D. Ga. 1977). There is no danger that HRS will be deprived of an opportunity to litigate any question about federal contribution because the United States Department of Health and Human Services is not a party to the present proceedings.
MOTION FOR PARTIAL SUMMARY JUDGMENT
Petitioner's motion for partial summary judgment was amended ore tenus at the final hearing to delete "and FYE March 31, 1981," on page 1 of the motion, after leave to amend was granted, without objection by respondent. As a technical matter, the motion is a misnomer, since substantial interest proceedings before the Division of Administrative Hearings eventuate in recommended orders, not judgments. But, petitioner's contention that there is no genuine issue as to any material fact is well founded. The parties have so stipulated. (T. 70; Mr. Weiss's letter of November 12, 1981.) At the time the petition was filed, the parties contemplated numerous factual disputes which, however, had all been resolved by the time of final hearing through the commendable efforts of counsel.
In the absence of a disputed issue of material fact, the Administrative Procedure Act provides for informal proceedings pursuant to Section 120.57(2), Florida Statutes (1979), "[u]nless otherwise agreed."
Section 120.57, Florida Statutes (1979). On December 7, 1981, the parties filed their Stipulation and Agreement to proceed pursuant to Section 120.57(1), Florida Statutes (1979), notwithstanding the absence of any factual dispute.
DISPUTE COGNIZABLE
In the present case, as in Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), there "can be no doubt that the Department's contract . . . calls for agency action which potentially affects . . . substantial interests," 363 So.2d at 812, of the petitioning contractor. Cf. Solar Energy Control, Inc. v. State Department of Health and Rehabilitative Services, 377 So.2d 746 (Fla 1st DCA 1979) (reh. den. 1980) (disappointed bidder substantially affected). See Section 120.52(10)(a), Florida Statutes (1979).
In Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), the petitioner sought "additional money and construction time under its contract," 363 So.2d at 813, with a state agency.
The court found "no difficulty . . . with sovereign immunity," 363 So.2d at 813, and held that a contractor with a state agency could invoke the Administrative Procedure Act in order to enforce its contract, even though the contract purported to establish another method for settling the contract dispute.
A clause in the contract at issue in the Graham Contracting case contemplated agency action outside the parameters of Chapter 120, Florida Statutes, in resolving certain disputes under the contract. In contrast, each of the successive contracts on which petitioner predicates its claim in the present case contains the following provision: "The hospital agrees to comply with the rules, policies, and procedures required by [HRS's] Division of Family Services for this program." Among the rules thus incorporated by reference into the contracts between petitioner and respondent is Rule 10C-7.35, Florida Administrative Code, which provides:
An official representative of a facility participating in Medicaid, . . . or . . . representative, may appeal Medicaid Program policy, procedure, or administrative rulings whenever the provider feels there has been an unfair, illegal or inappropriate action by the Department affecting them or their facility.
(1) Provider Appeals
The Administrative Procedures [sic]
Act, Chapter 120 F.S., provides for provider appeals and hearings, which are conducted by the Division of Administrative Hearings in the Department of Administration. The spe- cific rule relative to the appeal and hearing process is Chapter 28-3 [sic] of the Florida Administrative Rules. . .
Since, by reference to Rule 10C-7.35, Florida Administrative Code, the contract in the present case incorporates Chapter 120, Florida Statutes, the applicability of the Administrative Procedure Act is even clearer here than in the Graham Contracting case.
THE MERITS
The parties have stipulated that petitioner has been reimbursed by respondent less than its reasonable costs of providing covered inpatient hospital services over the time period in question. Under-reimbursement of this kind is not authorized by Section 409.266, Florida Statutes, which incorporates the federal statutory requirement that hospitals which, like petitioner, provide Medicaid services be reimbursed by respondent for reasonable costs incurred, in accordance with an approved State Plan, and not some lesser amount. 42 U.S.C. Section 1396a(a)(13)(B), Pub. L. 89-97, Section 121(a) redesignated 42 U.S.C. Section 1396a(a)(13)(D), Pub. L. 90-248, Section 224(a). All Florida "State Plan provisions . . . approved by HEW and . . . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, commit HRS to reimburse hospitals [like petitioner] that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Prehearing Stipulation, Paragraph 19.
The record is clear. Respondent consistently reimbursed petitioner less than its reasonable costs of providing inpatient hospital services in order to cut its own expenses and in doing so jeopardized the entire Medicaid program. This cannot be condoned, even though respondent acted under color of law, viz., Rule 10C-7.39(6), Florida Administrative Code [now repealed and declared invalid; see Pan American Hospital Corporation v. Department of Health and Rehabilitative Services, No. 81-1480R (DOAH; December 4, 1981)], and even though a lack of money or, at least, an apparent shortage was the reason for respondent's parsimony.
The question remains, however, whether this dereliction on respondent's part should inure to the benefit of petitioner; and the answer turns on the construction of the agreement between the parties attached as an appendix to this order. Petitioner argues cogently that public policy has clearly been enunciated by statute to be full reimbursement for costs reasonably incurred by Medicaid providers in furnishing covered services. There can be no clearer expression of public policy than a statute duly enacted; and the reasons behind the full reimbursement policy are themselves compelling: to deal fairly with the providers, not only for fairness sake, but also to assure their participation in the program, and to remove any temptation to give indigent patients substandard care, inter alia. But, there is surely an overriding public policy requiring that a contractor with state government who voluntarily agrees to forego a claim against the public fisc be held to that agreement in administrative proceedings like these.
The form agreement between petitioner and respondent, which they renewed annually, states: "It is understood that reimbursement will be made on the basis of an interim payment plan in the form of a per diem cost rate, plus a percentage allowance for the year in lieu of retroactive payment adjustment. However, . . . in the event the hospital did not receive its audited reasonable costs in the year prior to the current year then the hospital may deduct from the refund the prior year deficiency." (Emphasis supplied.) The agreement thus contemplated under-reimbursement and specified the method for recoupment, if there was to be any. Any "retroactive payment adjustment," as the result of administrative proceedings or otherwise, is specifically ruled out. Elsewhere in the parties' agreement is found this language: [T]he fiscal responsibility of [respondent's] Division of Family Services is subjected [sic] to the appropriation and availability of funds to the Medicaid program . . . by the state legislature every year." The terms of the agreement make clear that
under-reimbursement is not in itself a breach. Respondent's failure to compute annually a "new percentage . . . based on hospital cost trends" was attributable to a shortage of funds; and the agreement provided that respondent's "fiscal responsibility" was subject to just such a shortage. In sum, provisions of the agreement petitioner voluntarily entered into with respondent operate in much the same way as a liquidated damages clause and preclude the relief petitioner seeks.
Petitioner's invocation of the parol evidence rule is unavailing. Even if the stipulated facts outside the four corners of the form agreement are looked to, the course of dealing between these parties buttresses the construction outlined above. The fact that respondent may have settled a case it litigated against another hospital in some other way, as asserted by petitioner, is technically irrelevant.
That respondent deny the prayer of the petitioner for additional reimbursement.
DONE AND ENTERED this 10th day of December, 1981, in Tallahassee, Florida.
ROBERT T. BENTON II
Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 1981.
1/ Amended and recodified as Rule 10C-7.39(6), Florida Administrative Code, effective January 2, 1979.
2/ Respondent's "belief" in this regard accords with counsel's representations that the Department of Health and Human Services is fully cognizant of these proceedings because of various Freedom of Information demands and at least one attempt to depose a Department employee in connection with this matter.
Edward J. Hopkins, Esquire, and Michael H. Cook, Esquire
Richard E. Benton, Esquire Post Office Box 1833 Tallahassee, Florida 32302
Robert A. Weiss, Esquire 1317 Winewood Boulevard
David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard
================================================================= AGENCY FINAL ORDER
vs. CASE NO. 80-112
Respondent.
The Department of Health and Rehabilitative Services, finding the Recommended Order to be correct and being otherwise well advised in the premises, hereby adopts the findings of fact and conclusions of law of the attached Recommended Order entered in this cause by Hearing Officer, Robert T. Benton II, dated December 10, 1981, and said Order is hereby declared to be and by this Order becomes the Final Order of the Department.
Participation Agreement is not in violation of the Medicaid laws or contrary to public policy. The Agreement does reveal that no retroactive corrective adjustments will be made for underpayments. The Agreement further provides that the exclusive remedy for underpayments rests in Petitioner's right to offset any underpayment against overpayments occurring in the following year. The Agreement also specifies that payments are subject to appropriations and the availability of funds. This Agreement and its specific provisions regarding underpayments were voluntarily consented to by Petitioner when it contracted with the Department. Petitioners' claims for additional Medicaid reimbursements are governed by the Provider Agreement and its legal arguments to the contrary are specifically rejected.
DONE and ORDERED this 29th day of April, 1982, in Tallahassee, Florida.
DAVID H. PINGREE
