STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FRIENDLY VILLAGE OF BREVARD, ) INC., d/b/a WASHINGTON SQUARE, ) FRIENDLY VILLAGE OF FLORIDA, ) INC., d/b/a HOWELL BRANCH ) COURT, and FRIENDLY VILLAGE ) OF ORANGE, INC., d/b/a LAKE ) VIEW COURT, )

)

Petitioner, )

)

vs. ) CASE NO. 88-2938

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Mary Clark, held a formal hearing in the above- styled case on February 6, 1989, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Karen L. Goldsmith and

Michael Bittman

Suite 500, Day Building 605 East Robinson Street Post Office Box 1980 Orlando, Florida 32802

(407) 422-5166

For Respondent: Carl Bruce Morstadt and

Kenneth Muszynski

1323 Winewood Boulevard Building One

Tallahassee, Florida 32399-0700 STATEMENT OF THE ISSUES

Petitioners have challenged Respondent's methodology of cost settlement for reimbursement under the Florida Medicaid program relating to intermediate care facilities for the mentally retarded (ICF/MR).

Three issues are raised in this proceeding:

1. Whether the Title XIX ICF/MR Reimbursement Plan dated July 1, 1984 applies in certain regards retroactively for providers entering the program after January 1, 1983;

2. In the alternative, whether Washington Square and Lake View Court are entitled to a waiver from the class ceilings (caps) in the 1983 Medicaid Reimbursement Plan, and

   
   

3. Whether Howell Branch is entitled to application of a cost settlement methodology which would compare costs for the entire reporting period to payments for that entire period.

PRELIMINARY STATEMENT

In response to audit findings Petitioners filed timely petitions for a formal administrative hearing on June 8, 1988. Amended Petitions were filed for Washington Square and Lake View Court on August 9, 1988, and for Howell Branch on October 5, 1988.

A separate petition, pursuant to section 120.56, Florida Statutes was filed on September 15, 1988, challenging the Department of Health and Rehabilitative Services' audit settlement methodology as an invalid rule. At the request of Petitioner, and without objection, the two cases (DOAH #88-2938 and #88-4530R) were consolidated and considered in a single hearing. A Final Order in #88- 4530R is being entered at the same time as this Recommended Order.

At the commencement of the hearing, Petitioners withdrew all challenges to the audit adjustments raised in the petitions as amended, but specifically reserved the right to challenge those adjustments in future periods, (transcript pp 10-11). The parties agreed that the hearing would proceed on the three issues identified above.

In support of their petitions, Petitioners presented the testimony of Kingsley Ross, Terry Walter Bangs, Kenneth Schultz, William Kaempfer, and John

1. Bush. Petitioners' twelve exhibits were received into evidence by stipulation.

   
   

   Respondent presented the testimony of Francis E. Martin, Jr., Tom Arnold, and Carlton Dyke Snipes. Its two exhibits were also received into evidence by stipulation.

   
   

   After the hearing, a transcript was prepared and was filed on February 22, 1989. Thereafter, both parties experienced turnover in counsel. Without objection, the Department of Health and Rehabilitative Services was granted an extension for filing its proposed orders and Petitioners were granted leave to respond. The response was filed within the deadline on May 1, 1989.

   
   

   The proposed orders and written argument have been carefully considered and specific rulings on the proposed findings of fact are included in the attached appendix.

   
   

   FINDINGS OF FACT

   
   

   1. Friendly Village of Brevard, Inc. d/b/a Washington Square (herein, Washington Square) is an intermediate care facility for the mentally retarded (ICF/MR), located at 2055 North U.S. 1, in Titusville, Florida. Friendly Village of Orange, Inc., d/b/a Lake View Court (herein, Lake View Court), is also an ICF/MR located at 920 W. Kennedy Boulevard, in Eatonville, Florida. Howell Branch Court is the same type of facility, located at 3664 Howell Branch Road, Winter Park, Florida.

   2. All three facilities are operated by Developmental Services, Inc. All are certified ICF/MR's participating in the Florida Medicaid Program.

      
      

   3. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for overseeing the ICF/MR Medicaid Program.

      
      

   4. Howell Branch entered the Florida Medicaid Program in July 1982; Washington Square entered the program on January 19, 1983; and Lake View Court entered the program on February 13, 1983.

      
      

   5. Prior to beginning operations, medicaid providers were requested to submit a budgeted cost report, a projection of what the provider anticipated spending during the coming year for services to its residents.

      
      

      HRS received those reports and established a per diem rate based on the costs and number of patients and arrived at a per patient, per day rate.

      
      

      Each month as services were provided, the ICF/MR billed the state Medicaid program for the number of patient days times the per diem.

      
      

   6. During the period in question, cost settlement would occur at the conclusion of the budgeted period. The provider would file his cost report detailing what was actually spent in Medicaid-allowable costs to provide the services, HRS would compare that amount with the amount budgeted and would settle with the provider.

      
      

   7. Prior to the July 1, 1984 ICF/MR Medicaid Reimbursement Plan, if a provider were under reimbursed (incurred allowable costs in excess of reimbursement) the provider would not receive additional reimbursement in the settlement. However, if the provider received reimbursement in excess of its allowed costs, the excess had to be paid back to HRS. This is called "one-way" cost settlement.

      
      

   8. Representatives of HRS and Florida's ICF/MR industry began negotiations on a new state reimbursement plan in 1982 and 1983. The participants in the negotiations sought to remove certain cost limitations and to insure that individual facilities would receive fair reimbursement of their Medicaid- allowable costs. The negotiations resulted in the Title XIX ICF/MR Reimbursement Plan dated July 1, 1984 (the 1984 Plan).

      
      

      The 1984 Plan was adopted as a rule by incorporation, in Rule 10C- 7.49(4)(a)2. Florida Administrative Code.

      
      

   9. The 1984 Plan contains a two-way cost settlement method to replace the one-way settlement method described above. This means that under the 1984 Plan, providers could receive additional reimbursement during settlement if their actual allowable costs exceeded reimbursement under the per diem rate.

      
      

   10. Washington Square and Lake View Court filed budgeted cost reports for the fiscal year ending February 19, 1984. HRS performed audits of these reports in 1985. The audits were issued in April and May 1988. The audits did not apply the two-way cost settlement method described in the 1984 Plan.

       
       

   11. Petitioners claim that a proper interpretation of the 1984 Plan is that two-way cost settlement is retroactive to January 1983 for new providers entering the program after January 1, 1983.

       That claim is based on the following language in the 1984 Plan and subsequent 1985 Plan:

       
       

       For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12 month period submitted by the provider. (Petitioner's Exhibit 2, the 1984 Plan, pp

       29-30.

       1. For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12-month period submitted by the provider. Overpayment as a result of the difference between the approved budgeted interim rate and actual costs of the budgeted item shall be refunded to HRS. Underpayment as a result of the difference between the budgeted interim rate and actual allowable costs shall be refunded to the provider. The basis for calculating prospective rates will be the first year settled cost report.

          (Petitioner's Exhibit 3, the 1985 Plan, p. 31.)

          
          

   12. Neither the above, nor any other language in the plans indicate that the 1984 Plan would become effective for any providers prior to July 1, 1984.

       
       

       HRS intended that the plan be prospectively applied.

       
       

   13. Francis "Skip" Martin was employed in HRS' Medicaid Cost Reimbursement Planning and Analysis Unit and was involved in negotiating and drafting the 1984 plan for the agency. He remembers no discussions of retroactive application of the plan.

       
       

       Nor could Petitioners' witnesses expressly recall that the negotiations included retroactive application of the "two- way" settlement method. Instead, they were aware that the department was working with them to establish a more acceptable reimbursement plan and they assumed that retroactivity was part of the plan. (transcript pp 95-98, 126.)

       
       

       Skip Martin explained that the January 1, 1983 date was arrived at by working backwards from July 1, 1984, the date of the plan. The intent was to establish a cutoff point for providers entering the program as to whether they would be considered under prospective rates or be given an interim rate and still be considered a new provider when the plan was implemented.

       
       

       The January 1, 1983, cutoff allowed for a year's worth of reporting history plus sufficient time for the provider to compile his cost report and submit it to the department, and time for the department to have received the cost report and have it included in the calculations that would be used on July 1, 1984.

       ICF/MR's entering the program after January 1, 1983, would not have had

       sufficient cost history for rate setting, and as "new providers" would come under a separate rate setting provisions in the plan.

       
       

   14. Carlton Dyke Snipes has worked in HRS' Medicaid Cost Reimbursement Analysis Section since 1983, and in November 1985, he became the section Administrator. He explained that the language cited above from page 31 of the 1985 Plan was a clarification of the intent that the two-way cost settlement implemented on July 1, 1984, apply to new providers, as well as existing providers. The method had not been expressly addressed in the July 1, 1984 plan in that section relating to new providers.

       
       

   15. As an alternative to retroactive application of the two-way cost settlement provision in the July 1, 1984 Plan, Petitioners contend that they should be allowed a waiver of class ceilings as provided in the plan in effect in 1983. This issue was raised in this proceeding for the first time at the final hearing.

       
       

       The 1983 ICF/MR Medicaid Reimbursement Plan includes this provision regarding waivers:

       
       

       The class ceiling under paragraph c

       above may be exceeded provided; the period of the limits shall not exceed six (6) months.

       The HCFA Regional Office will be notified in writing at least 10 days in advance in all situations to which this exception is to be applied and will be advised of the rationale for the decision, the financial impact, including the proposed rate and the number of facilities and patients involved. (Petitioners' Exhibit #7, p. 15)

       
       

   16. In one case discussed at hearing, HRS granted an exemption under this provision. The facility was an ICF/MR cluster facility, Sunrise Cape Coral. The application by the facility was cleared in advance by the federal agency, Health Care Financing Administration (HCFA). The 1983 Plan is no longer in effect and was superceded by the July 1, 1984 Plan.

       
       

       Petitioners did not apply for a waiver when the 1983 Plan was in effect. Instead, they claim that they did not know such an opportunity existed until discovery for this proceeding uncovered the Sunrise case.

       
       

   17. The issue with regard to Petitioner's Howell Branch facility differs from the audit issues affecting Washington Square and Lake View Court addressed above.

       
       

       HRS' audit of Howell Branch in 1988 includes an overpayment to the facility of approximately $115,000.00. Petitioners claim that Howell Branch should not have to reimburse those funds because during a portion of the eighteen-month cost reporting period Howell Branch was underpaid for an amount which should more than offset the overpayment.

       
       

   18. According to the provisions of the reimbursement plan which was in effect during the relevant period, July 1982 (when Howell Branch opened) through December 1983, HRS cost settled based on the lesser of: class ceilings in effect during the period, actual costs, or the budgeted interim rate.

       Class ceilings are established by HRS for various levels of care required by ICF/MR residents. These ceilings are based on cost reports received by HRS as of each June 30 and go into effect on October 1st of each year. Howell Branch, therefore, experienced three class ceilings during its July 1982 through December 1982 reporting period.

       
       

   19. HRS applied those three cost ceiling periods to Howell Branch, rather than monthly periods, as contended by Petitioners.

       
       

       As described by Carlton Dyke Snipes, MRS took the average cost determined by an audit report and every rate than had been in effect during that cost reporting period and, for every period that rate was in effect, applied the lesser of the average audited cost or the budgeted rate that was paid or the ceiling that was in effect and reprocessed the claims that had been made. This resulted in the $115,000.00 overpayment.

       
       

       If MRS had used average costs and average rates for the entire eighteen- month period, as advocated by Petitioners, the result would have been that ceilings would be exceeded during a portion of the eighteen month period.

       
       

       CONCLUSIONS OF LAW

       
       

   20. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to section 120.57(1), Florida Statutes.

       
       

   21. The petitions in this case were filed pursuant to section 120.57(1), Florida Statutes and were referred to the division pursuant to that section. At hearing, however, when Petitioners withdrew their challenges to specific audit adjustments, virtually no disputed issues of material fact remained. The three issues identified and agreed to by the parties are issues of interpretation by the agency. Since the parties agreed to proceed on those issues, as well as on the separate rule challenge, jurisdiction of the Division was not divested.

       
       

   22. Disposition of the issues in this case requires review of provisions of several Title XIX Medicaid ICF/MR Reimbursement Plans, adopted by HRS as rules in 10C-7.49, Florida Administrative Code and 10C-7.0491, Florida Administrative Code.

       
       

       The language relied upon by Petitioners in the 1984 and 1985 plans, cited and discussed in Findings of Fact 11 and 12, above, do not compel an interpretation that two way cost settlement is retroactively applied to providers entering the program after January 1, 1983. Nothing else in those plans addresses retroactivity of the two-way settlement methodology that was negotiated and included in the 1984 Plan as a substantial change from the agency's prior practice.

       
       

   23. An agency's interpretation of its own rule is entitled to great weight and only when its construction clearly contradicts the unambiguous language of the rule should that construction be rejected. Woodley v. Department of Health and Rehabilitative Services, 505 So.2nd 676 (Fla. 1st DCA 1987), citing Franklin Ambulance Service v. Department of Health and Rehabilitative Services, 474 So.2nd 819 (Fla. 1st DCA 1985).

       
       

   24. At the hearing the agency explained and justified its interpretations; it also distinguished a prior set of circumstances in which a different course was taken.

The reimbursement plans neither compel nor prohibit HRS' refusal to waive the class ceilings. Although the 1983 plan is no longer in effect, settlement of these audits under the 1983 plan is not complete.

Similarly, the reimbursement plans neither compel nor prohibit the methodology applied by HRS in the Howell Branch facility. It is reasonable, however, and Petitioners failed to show that it, or the other disputed applications of the plans, are clearly erroneous.

RECOMMENDATION

Based on the foregoing, it is hereby,

RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order denying the petitions of Washington Square, Lake View Court and Howell Branch.

DONE and ENTERED this 14th day of June, 1989 in Tallahassee, Florida.

MARY CLARK

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 1989.

APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-2939

The following constitute specific rulings on the findings of fact proposed by the parties:

Petitioners' Proposed Findings of Fact

1 and 2. Included in Preliminary Statement.

3 through 6. Adopted in Paragraph 1.

7. Adopted in Paragraph 2.

8 through 10. Adopted in Paragraph 3.

11 and 12. Adopted in Paragraph 5.

13 and 14. Adopted in Paragraph 6.

1. Adopted in Paragraph 7.

2. Rejected as unnecessary.

17 and 18. Adopted in Paragraphs 8 and 9, except for the implication that two- way reimbursement applied retroactively to January 1, 1983.

1. Adopted in part in Paragraph 9, but the retroactive application of the methodology is rejected as inconsistent with the evidence.

2. Adopted in Paragraph 11.

3. Adopted in part in Paragraph 10, the statement of entitlement to two-way settlement is rejected as inconsistent with the evidence.

4. Adopted in Paragraph 15.

5. Rejected as argument.

6. Adopted in part in Paragraph 16, otherwise rejected as argument.

7. Rejected as inconsistent with the evidence.

8. Rejected as contrary to the evidence. HAS' method of cost settlement was not inappropriate.

9. Adopted in substances in Paragraph 19.

10. Rejected as unnecessary

29 and 30. Rejected as argument and unnecessary.

Respondent's Proposed Findings of Fact

1. Adopted in Paragraph 1.

2. Adopted in Paragraphs 2 and 3

3. Adopted in Paragraph 8.

4 and 5. Adopted in Paragraphs 4 and 5.

1. Adopted in Paragraph 6.

2. Adopted in Paragraph 10.

3. Adopted in Paragraphs 10 and 11.

4. Adopted in Paragraph 17.

COPIES FURNISHED:

Michael Bittman, and Karen L. Goldsmith

P.O. Box 1980

Orlando, Florida 32802

Carl Bruce Morstadt and Kenneth Muszynski

1323 Winewood Boulevard, Bldg. One Tallahassee, Florida 32399-0700

Gregory L. Coler, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

John Miller, General Counsel Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

R.S. Power, Agency Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Docket for Case No: 88-002938

Orders for Case No: 88-002938