vs. ) CASE NO. 84-3405
Respondent. )
Pursuant to Notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William R. Cave, held a formal hearing in this case on January 8, 1987 in Gainesville, Florida. The issue for determination is whether Petitioner's property costs are reasonable and subject to full reimbursement notwithstanding Respondent's statewide property costs reimbursement rate calculated pursuant to the Florida Title XIX Long-Term Reimbursement Plan, as amended September 1, 1984 which was incorporated by reference in Rule 10C-7.0482, Florida Administrative Code.
For Petitioner: Grafton B. Wilson, II, Esquire
For Respondent: Theodore E. Mack, Esquire
By letter dated August 3, 1984, Respondent's Medicaid Program notified the Petitioner of its property cost reimbursement rate which was to be effective on September 1, 1984 as a result of an amendment to the Florida Title XIX Long Term Care Reimbursement Plan. On August 31, 1984, Petitioner filed it's petition for formal administrative hearing to contest the property cost reimbursement rate calculated by Respondent under the amended plan. The Respondent did not challenge Petitioner's standing, to challenge the application of the amended plan (rule) to Petitioner pursuant to Section 120.57(1), Florida Statutes.
In support of its position, Petitioner presented the testimony of Erwin Peter Bobo, Lester Heyboer, Jr., Vincent James Micucci, and Anthony Liuzzo.
Petitioner's exhibits 1 through 6 were received into evidence. Respondent presented the testimony of Carlton Dyke Snipes. Respondent's exhibits 1 through
4 were received into evidence.
The parties submitted posthearing proposed Findings of Fact and Conclusions of Law. A ruling on each proposed finding of fact has been made as reflected in the Appendix of this Recommended Order.
Respondent administers Florida's Medical Assistant Program (Medicaid Program) which is jointly funded by the state and federal government under Title XIX of the Social Security Act.
Under the Medicaid Program, eligible recipients receive services from providers who voluntarily participate in the program.
Under the Medicaid Program, Respondent is required to reimburse providers only reasonable costs, not all costs incurred.
Petitioner is a licensed Florida nursing home facility and at all times material hereto, was certified to and was participating in the Medicaid Program. Participation in the program is subject to all State and Federal laws, regulations, standards and guidelines relating to medicaid.
The methodology for determining reimbursement to a nursing home such as Petitioner under the Medicaid Program is set forth in the Title XIX Long-Term Care Reimbursement Plan (Gainesville Plan) which is incorporated by reference in Rule 10C-7.0482, Florida Administrative Code. The validity of the amended rule is not being challenged in this proceeding, only its application to Petitioner.
Prior to implementation of the Gainesville Plan on April 1, 1983, Medicaid's reimbursement to nursing homes was more restrictive. The Gainesville Plan resulted from settlement of a lab suit challenging the reasonableness of reimbursement to nursing homes. The Gainesville Plan as implemented on April 1, 1983, placed ceilings on the reimbursement for operating and patient care costs but not reimbursement for property costs.
In 1982 Petitioner ended years of litigation when it won approval to build a nursing home without a certificate of need.
Due to the extended litigation, Petitioner lost an earlier financing arrangement which, due to the then existing economic conditions, resulted in the Petitioner being forced to seek financing for the construction of the nursing home through the issuance and sale of Industrial Development Revenue Bonds authorized pursuant to City of Gainesville, Florida Resolution R- 82-13 of January 13, 1982. Under the terms of the bond issue, the facility cannot be leased, resold or refinanced before 1990 and, therefore, Petitioner is still paying the "high rate" of interest negotiated in 1982.
In determining the financial feasibility of the nursing home, the auditors preparing the bond documents based their calculations on the more restrictive reimbursement methodology for Medicaid which was in effect before the Gainesville Plan. Petitioner was projecting a forty per cent (40 percent) Medicaid utilization and the bond documents warned investors of the possibility of changes in the Medicaid Program. The present Medicaid utilization is in excess of eighty per cent (80 percent)
At the time it financed the nursing home, Petitioner was aware of the upcoming changes to be implemented by the Gainesville Plan but those changes were not reflected in the bond issue.
The State of Florida was not involved in the bond issue.
Petitioner built its nursing home to Florida licensure standards and was not required by Respondent to meet any more stringent requirements than for other Florida nursing homes.
Upon entering the Medicaid Program, Petitioner was warned that its property costs appeared excessive.
Petitioner's property costs were the highest of all nursing homes participating in Florida's Medicaid program as of January 1, 1985.
Because the Gainesville Plan placed no A limitations on property costs, Petitioner was allowed to recover all of those costs in its Medicaid per diem rate. Petitioner could not recover all of its operating and patient care costs because those costs exceeded caps that were placed in the Gainesville Plan. The medicaid per patient day amount of such total property costs was initially approved by Respondent in the sum of $37.6740, based on a low occupancy during the start up phase of the facility.
The implementation of the Gainesville Plan created a significant increase in the state funds budgeted for nursing homes. It was estimated that the first year increase would be approximately $50 million.
The Florida Legislature, which appropriates the funds for Medicaid and makes recommendations as to how that money is to be spent, directed Respondent to implement ceilings on property costs.
On September 1, 1984, the Gainesville Plan was amended to include caps for property costs. In determining reasonable caps, Respondent through the Gainesville Plan, utilized a formula similar to that which it utilizes in capping operating and patient care caps. That formula took the median of the per diem property costs for the 100 newest nursing homes participating in Medicaid and increased it by one standard deviation. New nursing homes were given a higher property cost cap during their first 18 months of operation to allow for startup costs. As a result of Respondent using this new formula for determining reimbursement rates for property cost, the Petitioner was notified in August, 1984 that effective in September 1, 1984 its property costs reimbursement rate would be reduced to $15.91 per patient day and further reduced to $12.56 effective January 1, 1985.
Respondent considered the property costs reimbursement rate caps reasonable based upon a comparison of statewide per diem rates. As of January 1, 1985, only 38 or 10 percent of nursing homes participating in Medicaid had their property costs capped. The Gainesville Plan was subsequently approved by the federal government which considers the reasonableness of cost reimbursement in approving such plans.
Since property costs reimbursement rates must be set at a level which will be adequate to reimburse allowable and reasonable property costs of an economically and efficiently operated facility, property costs of existing
facilities that exceeded the "cap" were not "grandfathered" in under the September 1, 1984 amendment to the Gainesville Plan because they were considered not to be reasonable.
Petitioner was immediately affected by the reduction in the property costs reimbursement rates which became effective on September 1, 1984. Because of its financing arrangement and because of a large Medicaid population, Petitioner experienced a large shortfall between actual costs incurred and costs that would be reimbursed by the Medicaid Program.
Petitioner's property costs were the highest of all nursing homes participating in Florida's Medicaid Program as of January 1, 1985.
Nationwide, Florida ranks in the top ten percent (10 percent) in average Medicaid nursing home per diem payment.
There is no requirement that a nursing home accept Medicaid's patients.
On October 1, 1985, Respondent went to a fair rental value system to determine allowable Medicaid property costs. Under that system, through negotiations with representatives of the nursing home industry, $28,500 was established as a reasonable cost per bed. In 1982, Petitioner's cost per bed, including financing, was approximately $41,000.
Petitioner's Medicaid per diem rate has been calculated in accordance with the method set forth in the Gainesville Plan and Petitioner has not been treated differently than any other provider in the determination of its Medicaid per diem rate.
Although Petitioner had been previously allowed to recover all its property cost under the Gainesville Plan prior to amendment, there was insufficient evidence in the record to prove that Petitioner's property costs not reimbursed under the plan as amended were allowable and reasonable costs of an economically and efficiently run facility.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, this proceeding pursuant to Section 120.57(1), Florida Statutes.
Rule 10C-7.030(1)(a), Florida Administrative Code defines Medicaid as "a governmental health care program which provides to eligible needy persons, assistance in meeting the cost of medical care." The program is financed from State and Federal funds and in order to qualify for Federal funds, the State must comply with the Federal Social Security Act of 1935 as amended, and the rules and regulations of the United States Department of Health and Human Services, made in accord with the Act and subsequent court decisions. See Rule 10C-7.030(1)(b), Florida Administrative Code.
Respondent is the state agency designated to administer Medicaid funds under Title XIX of the Social Security Act pursuant to Section 409.266, Florida Statutes.
In accordance with its duty to administer the Medicaid Program, Respondent has adopted rules and regulations governing the reimbursement of
eligible providers who provide eligible services to eligible recipients. The rules are contained in Chapter 10C-7, Florida Administrative Code. The particular rule governing the reimbursement of nursing homes is the Florida Title Long-Term Care Reimbursement Plan (Gainesville Plan) which is incorporated by reference in Rule 10C-7.0482, Florida Administrative Code.
The pertinent portions of the Gainesville Plan as amended, effective September 1, 1984 is paragraph IV. C. and V.B. 8. which state:
Paragraphs IV.C. and V.B.8., of the Gainesville Plan as amended, effective September 1, 1984, provide in pertinent part as follows:
Standards
* * *
C. The ceilings will be determined prospectively and will be effective semi- annually on January 1 and July 1... The first cost report submissions for all newly constructed facilities will be used to establish the property cost ceiling. The first cost report year end of these newly constructed facilities must be after October 1, 1977. In addition, all facilities with year ends prior to that of the one hundredth facility in an array from most current to least current year end shall not be considered in setting the property costs ceilings. Ceilings will be set at a level which the State determines to be adequate to reimburse the allowable and reasonable costs of an economically and efficiently operated facility....
Method
B. Setting prospective reimbursement per diem facilities.
8. Determine the statewide property cost per diem ceilings as follows:
Calculate the per diem property cost for the array of newly constructed facilities by
dividing the total property cost by the total patient days for each facility.
Calculate the statewide average occupancy for all facilities used
in setting the patient care
and operating ceilings. Calculate the median occupancy for the array of newly constructed facilities.
Calculate two occupancy-adjusted property per diems:
An average occupancy property per diem is calculated by the formula:
Average = Newly- Newly-
Occupancy Constructed Constructed Property Facility Occupancy x Facility Property Per Diem Statewide Average Per Diem
Occupancy
A median occupancy property per diem for newly constructed facilities is calculated
by the formula:
Median = Newly- Newly-
Occupancy Constructed Constructed Property Facility Occupancy x Facility Property Per Diem Median of Newly Per Diem
Constructed Facility Occupancy
Adjust the two occupancy-adjusted prop- erty diems for the effects of construction cost inflation by multiplying each by the fraction:
Florida Construction Cost Inflation Index at midpoint of prospective rate period Florida Construction Cost Inflation Index at mid- point of provider's cost report period.
The calculation of the Florida Construction Cost Inflation Index is displayed in Appendix B.
Calculate the median and standard deviation of the average occupancy property per diems.
The statewide property cost per diem ceiling for facilities that have more than
18 months operating experience will be the median of the average occupancy property per diems plus one standard deviation.
The statewide property per diem ceiling for facilities that have 18 or fewer months of operating experience will be the median of the median occupancy property per diems plus one standard deviation.
The Petitioner is not challenging the validity of the reimbursement rule in this proceeding, but is challenging the application of the rule to its particular reimbursement rate. Petitioner admits that the Respondent correctly utilized the rule in calculating the statewide property cost per diem rate used to determine Petitioner's reimbursement. It is Petitioner's contention that the statewide property cost per diem rate as calculated under rule does not reimburse it for allowable and reasonable costs.
The burden of proof is on the party asserting the affirmative of an issue before an administrative tribunal, Florida Department of Transportation v.
4.-5. Adopted in Finding of Fact 8 but clarified. 6.-8. Adopted in Finding of Fact 12 but clarified.
17.-21. Rejected as not supported by substantial competent evidence in the record.
1.-13. Adopted in Findings of Fact 1 through 13, respectively.
Grafton B. Wilson, II, Esquire Gregory L. Coler,
Theodore E. Mack, Esquire 1323 Winewood Boulevard
