STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SHANDS TEACHING HOSPITAL )

AND CLINICS, INC., )

)

Petitioner, )

)

vs. ) Case No. 88-5128

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this Matter came on for hearing in Tallahassee, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Diane Cleavinger, on March 13, 1989.

APPEARANCES

The parties were represented as follows: For Petitioner: David A. Roberts, III

Shands Hospital Box J-303 JHMHC

Gainesville, Florida 32610

James E. Thomison Shands Hospital Box J-303 JHMHC

Gainesville, Florida 32610

For Respondent: Carl Morstadt

Assistant General Counsel Department of Health and

Rehabilitative Services Building One, Room 407 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

John W. Hedrick

Assistant General Counsel Department of Health and

Rehabilitative Services Building One, Room 407 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

STATEMENT OF THE ISSUES

The issue at the hearing was whether the Respondent is entitled to reimbursement for paid Medicaid benefits as a result of Respondent's treatment of certain "discounts" to a patient's account as a result of Petitioner's Preferred Patient Care Agreement as a "third party payment or benefit" for the purposes of calculating the appropriate Medicaid payment.

PRELIMINARY STATEMENT

At the hearing, Petitioner did not call any witnesses, but offered into evidence four exhibits. Respondent presented four witnessess and offered three exhibits into evidence.

Petitioner and Respondent filed their proposed recommended orders on June 6, 1989. The parties' proposed findings of fact have been considered and utilized in the preparation of this Reccomended Order except where such proposals were not supported by the weight of the evidence or were immaterial, cummulative or subordinate. Specific rulings on the parties' proposals are contained in the Appendix to this Reccomended Order.

FINDINGS OF FACT

1. On June 26, 1981, Petitioner and Respondent entered into a contract entitled "Hospital Application and Agreement for Participation in the Florida Medicaid Program-Title XIX" (Participation Agreement). The Participation Agreement was drafted by HRS and is similar to other contracts between Respondent and other hospitals throughout the State which participate in the Medicaid program.

   
   

2. The Participation Agreement provides for Medicaid payment on a Medicaid recipient's account. The payment is based on the number of days the Medicaid recipient is in the hospital, i.e. a per diem cost rate. The actual charges or costs to an individual patient are not taken into account in determining Medicaid's responsibility for payment of its per diem rate on behalf of an individual patient who is a Medicaid recipient. The per diem rate is calculated annually for each hospital based on an average of that hospital's costs for all of its patient care. The per diem rate is not based on an individual patient's cost. Federal law mandates that the per diem rate be based upon the actual costs incurred by the hospital for its patient services. 1/ Title 42 USC Sect. 1396a.

   
   

3. Medicaid's liability for payment of its per diem rate is determined by whether the individual patient meets the Medicaid eligibility requirements of age and income. If the individual patient meets those requirements, Medicaid is responsible for payment of that patient's hospitalization based on the number of days the patient is hospitalized. Other than the hospital's established per diem rate, there is no cap on Medicaid's responsibility. However, Medicaid is a secondary payor in the sense that when there is third party liability for the individual patient's hospital care, the amounts paid by that third party will be deducted from the total amount of the Medicaid benefit due an individual patient.

   
   

4. The Participation Agreement provides in pertinent part:

   
   

   The hospital shall explore any third party liability for care of the patient, shall seek

   assignment, and shall file appropriate claims for benefits to which the patient may be entitled.

   Notwithstanding the receipt of third party payments, the hospital agrees to bill Medicaid. Any insurance, or other third party payments, collected applicable to the period of hospitalization for which the State assumes responsibility up to the amount of State payment shall be refunded to the Department of Health and Rehabilitative Services within 30 days after receipt of the same by the hospital.

   
   

5. Simply put, any third party liability collected by the hospital acts as an offset to Mecicaid's obligation. However, the offset does not eradicate Medicaid's responsibility to pay its benefits on an individual patient. The above is true even if the Medicaid benefits exceed the total charges to the individual patient. In that event, the hospital would receive one hundred percent of the charges to the patient from either Medicaid or the insurance company plus the remaining balance of the Medicaid per diem, if any. Dollar for dollar liability has never been a requirement for the payment of Medicaid benefits under the Medicaid program as long as there was some patient liability for a part of the hospital charges.

   
   

6. Beyond the offset effect of third party benefits, the method and terms of payment of Medicaid vis a vis the third party have nothing to do with each payor's responsibility for paying its particular benefits.

   
   

7. On December 30, 1986, and again on March 20, 1987, Charlotte Lancaster was hospitalized for two separate periods of twelve days each at Shands Hospital.

   
   

8. On March 16, 1987, John Shelley was hospitalized for a period of seven days at Shands Hospital.

   
   

9. Both Charlotte Lancaster and John Shelley were qualified Florida Medicaid recipients. Payment of both patient's Medicaid benefits was governed by the 1981 Participation Agreement. In addition, both patients had third party insurance coverage through a Blue Cross and Blue Shield of Florida, Inc. (BCBS) preferred patient care plan.

   
   

10. A preferred patient care plan generally consists of a contract of insurance with an individual insured. The contract provides for a greater payment of health care charges (often 100%) if the insured utilizes medical services from a list of approved service providers. If the insured does not utilize the services of a health care provider on the Company's list then the policy pays less benefits or none at all.

    
    

11. The list of approved health care providers consists of the health care providers with which the insurance company has negotiated a separate contract. The contract provides for the amount that that particular service provider will charge for its medical service. The reason for such agreements is to, on average, lower the amount of benefits the insurance company is required to pay to a medical service provider for patient care. It is a benefit to the insurance company as a risk management device. It is not a benefit to the insured since the insurance company is otherwise liable to pay its separately contracted for benefits under its contract of insurance with its insured.

12. In this case, BCBS had negotiated a Preferred Patient Care Agreement (PPC Agreement) with Shands Hospital. The PPC agreement provided payment of hospitalization benefits based on the patient's diagnosis and the rate established in the agreement for that patient's diagnostically related group (DRG). Payment of insurance benefits was not based on actual hospital charges or costs. Simply put, the PPC Agreement established a fixed price for the patient services rendered by the hospital and covered under the PPC Agreement. Any service or charges not covered by the PPC Agreement remained the patient's responsibility.

    
    

13. Paragraph 8.3 of the PPC Agreement provided that the Hospital would not bill or attempt to collect from the patient any charges other than the deductible, co-insurance, or items furnished for the patient's convenience. Neither the patient nor the insurer was liable for costs incurred by the hospital beyond the DRG rate established in the PPC agreement.

    
    

14. The PPC Agreement provided for the same computation of payments, without regard to whether the patient was eligible for payments from Medicaid, and contained no provision limiting or excluding the insurer's obligation based on such eligibility. 2/

    
    

15. For each of the three admissions, Shands filed the appropriate claims for payment with both HRS and BCBS. 3/ For the first admission of Charlotte Lancaster, Shands received a third party payment of $2,186.00 from BCBS and

    $7,513.00 payment from Medicaid. These payments totalled $9,699.00 and were equal to the total Medicaid per diem cost rate in effect between HRS and Shands (12 days x $808.25 per day). Total charges incurred by the hospital for Charlotte Lancaster's first hospital stay were $11,477.50. For the second admission of Charlotte Lancaster, Shands received a $2,281.50 third party payment from BCBS and a $1,152.41 payment from Medicaid. These payments totalled $3,433.91 and were $6,375.61 less than the total Medicaid per diem cost rate in effect between Shands and HRS (12 days x $817.46 per day $9,809.52).

    Total charges incurred by the hospital on behalf of Charlotte Lancaster for her second stay were $9,635.70. For the admission of John Shelley, Shands received a $1,967.40 third party payment from BCBS and $3,754.82 in Medicaid payments from HRS. The payments from BCBS and HRS totalled $5,722.22 and equalled the total Medicaid per diem cost rate in effect between Shands and HRS (7 days x

    $817.46 per day). Total charges incurred by the hospital on behalf of John Shelley were $3,245.50.

    
    

16. Under the participation agreement and the Medicaid statutes HRS was required to pay $9,699.00 and $9,809.52, respectively, for the two admissions of Charlotte Lancaster, and $5,722.22 for the single admission of John Shelley. As indicated earlier, HRS was entitled to a set-off in the amount of the third party payment made by BCBS. Therefore, HRS does not owe any further benefits to Shands for the first admission of Charlotte Lancaster and the only admission of John Shelley. However, HRS does owe further benefits to Shands on behalf of Charlotte Lancaster for her second admission in the amount of $6,375.61.

    
    

17. By letter dated August 1, 1988, HRS advised Shands that it was due a refund of monies HRS had paid to Shands on behalf of Charlotte Lancaster and John Shelley. The amounts claimed due by HRS were $7,528.02 and $710.07, respectively, for the two admissions of Charlotte Lancaster, and $646.30 for the admission of John Shelley. HRS based its claim to the above refunds on its method of accounting for third party PPC benefits. In essence, HRS claimed that the "PPC discount", the difference between the PPC payment and the total charges incurred by the hospital, was a benefit to the Medicaid recipient. As a benefit

    of the recipient, HRS was entitled to offset the discount. However, since the "PPC discount" is neither a benefit to the recipient, nor is money paid on behalf of the recipient, nor a true discount to the recipient, HRS' characterization cannot stand. 4/

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sect. 120.57(1), Florida Statutes.

    
    

19. Section 409.266, Florida Statutes, provides that third party coverage for medical services shall be exhausted before HRS has an obligation to pay for services on behalf of Medicaid recipients. The statute further provides that HRS is subrogated to any rights to third party payments and shall recover the amount of medical assistance payments made on behalf of the recipient. These provisions establish the set-off effect of third party payments. These provisions do not relieve HRS from paying its Medicaid benefits pursuant to the terms of its program and the Participation Agreement with Shands.

    
    

20. Rule 10C-7.0301, Florida Administrative Code, entitled "Recovery of Medicaid Third Party Payments", and Rule 10C-7.0397, Florida Administrative Code, entitled "Third Party Liability" state in pertinent part:

    
    

    Rule 10C- 7.0301(1)

    1. "Third Party" means an individual, entity, or program that may be liable to pay all or part of the medical cost of injury, disease, or disability of a recipient of medical assistance.

    2. "Third Party Payments or Benefits" means any monies that are available at any time through contract, court judgment or settlement, agreement or any other arrangement between a third party and a Medicaid recipient, a provider or the Department for payment of medical services rendered to said recipient.

       
       

       Rule 10C-7.0309(7)

       1. Third Party Liability. The hospital shall explore any third party liability for care of the recipient, shall seek assignment, and file appropriate claims for benefits to which the recipient may be entitled. The amount of known or anticipated payments from third party sources must be entered on the claim form.

       2. . . . The hospital is responsible to pursue the third party resource and to refund the amount of third party reimbursement up to the amount of the Medicaid payment.

       
       

21. The Participation Agreement and the above provisions provide that third party benefits are monies available for payment. Amounts for which the

    insurer has no liability are not third party payments or benefits. Additionally the Participation Agreement refers to "payments collected". Such language does not include monies never paid for which there was no obligation to pay on the part of the third party payor. Such "funds" are simply not available to the recipient and are, therefore, not third party payments or benefits. Finally, the "PPC discount" is simply not a "benefit" to the Medicaid recipient. For the all of the foregoing reasons, the "PPC discount" is not a benefit of the recipient to which HRS is subrogated. HRS is not subrogated to benefits obtained by the insurer on its own behalf and for its own purposes. Therefore, it is inappropriate to deduct the "PPC discount" from a patient's Medicaid benefit, and the "PPC discount" should not have been deducted from the Medecaid benefits of Charlotte Lancaster or John Shelley.

    
    

22. The relevant federal statutes do not support HRS' position on the deductibility of the "PPC discount" from a patient's Medicaid benefits. The federal Medicaid statutes have been repeatedly interpreted by the federal courts to prohibit a State from paying Medicaid benefits on other than a cost basis as established in the hospital's per diem. 5/ See Connecticut State Deartinent of Public Welfare v. Department of Health, Education and Welfare, Social and Rehabilitation Services, 448 F2d 209 (2d Cir. 1971), Geriatrics, Inc. v. Colorado Department of Social Services, 712 P2d 1035 (Colo App 1985) and Ex parte Luverne Geriatric Center, Inc., 480 So 2d 582 (Ala App 1985), on remand Luverne Geriatric Center, Inc. v. Baciano, 480 So 2d 569 (Ala App 1985). HRS' policy has been to pay the full Medicaid benefit even when that benefit exceeds the amount of the patients' bill from the hospital. Under that policy it would be inappropriate for HRS to discriminate against a type of insurance and limit its statutory liability based on the fact that the patient is not liable for the charges beyond the patient's DRG rate. HRS has not maintained this position when there is no insurance and it cannot maintain this position when there is insurance.

    
    

23. The problem in co-ordinating Medicaid benefits and insurance benefits is that each payor's liability is established under different terms and conditions. Medicaid's liability is established on the Hospital's per diem rate with no cap based on the actual charges of the hospital to the individual patient. BCBS' liability is established based on a fixed DRG rate. Both payors are obligated to pay its respective medical benefits under the terms and conditions of the payor's statutes or contract, with the third party payor offsetting Medicaid's liability.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health and Rehabilitative Services enter

a final order withdrawing its refund request for the accounts of Charlotte Lancaster an John Shelley and pay to Petitioner the amount of $6,375.61 as the balance due for Medicaid's responsibilty for the second admission of Charlotte Lancaster.

DONE and ENTERED this 18th day of July, 1989, in Tallahassee, Florida.

DIANE CLEAVINGER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Filed with the Clerk of the Division of Administrative Hearings this 18th day of July, 1989.

ENDNOTES

1/The above description is simplified. There are numerous criteria and penalties in the per diem calculation which are intended to serve as encouragement to hospitals to provide healthcare in a cost effective manner. However, for purposes of this Recommended Order the description of the per diem calculation is accurate.

2/ No evidence was presented which demonstrated that such PPC plans have the effect of limiting or excluding the third party coverage because the patient is eligible for Medicaid. See Title 42 U.S.C. Part 1396b(o).

3/ No issue was raised as to whether BCBS in fact paid the full amount of benefit under the PPC Agreement. The evidence did indicate that BCBS may pay its benefits in two different installments and under two different methods for calculating the benefit amount. To the extent that such a second payment can be traced to Medicaid patients, HRS would be entitled to the offset. However, because the issue was not raised the specifics of any additional setoff and the extent to which it can be traced is not determined in this Recommended Order.

4/ Respondent presented a letter dated March 6, 1989, from Region IV of the Department of Health and Human Services in support of its interpretation of the federal Medicaid statutes and regulations. This letter is not sufficient to establish that such an interpretation of the Medicaid statutes or regulations is correct or is correct under the Florida program. The letter is insufficient because it is hearsay for which no foundation for a hearsay exception was presented. Therefore, no findings of fact can be based on the contents of the letter. Moreover, the letter is insufficient since the claimed interpretations of the statutes involved appear to ignore the longstanding policy of Medicaid to pay the full amount of its benefit regardless of dollar for dollar patient liability.

5/ Whether limiting Medicaid responsibility to dollar for dollar patient liability is possible under the federal Medicaid statutes is not addressed in this Recommended Order. Likewise, whether the costs given away by the hospital under PPC agreements are appropriate for inclusion in calculating the hospital's per diem rate is not addressed in this Recommended Order.

APPENDIX TO RECOMMENDED ORDER CASE NO. 88-5128

1. The facts contained in paragraphs 1, 2, 3, 4, 5, 6, 9, 10 and 11 of Petitioner's Proposed Findings of Fact are adopted in substance, in so far as material.

   
   

2. The facts contained in paragraphs 7 and 8 of Petitioner's Proposed Findings of Facts are subordinate.

   
   

3. The facts contained in paragraphs 1, 2, 4, 6, 9, 10, 11, 14, 15, 16, 19, 20 and 21 of Respondent's Proposed Findings of Fact are adopted in substance, in so far as material.

   
   

4. The facts contained in paragraphs 3, 7, 8, 12, 13, 17, 18, 22 and 23 of Respondent's Proposed Findings of Fact are rejected.

   
   

5. The facts contained in paragragh 5 of Respondent's Proposed Findings of Fact were irrelevant.

COPIES FURNISHED:

David A. Roberts, III Shands Hospital

Box J-303 JHMHC

Gainesville, Florida 32610

James E. Thomison Shands Hospital Box J-303 JHMHC

Gainesville, Florida 32610

Carl Morstadt

Assistant General Counsel Department of Health and

Rehabilitative Services Building One, Room 407 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

John W. Hedrick

Assistant General Counsel Department of Health and

Rehabilitative Services Building One, Room 407 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Gregory L. Coler, Secretary

Department of Health and Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Sam Power, Clerk

Department of Health and Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES

SHANDS TEACHING HOSPITAL AND CLINICS, INC.,

Petitioner,

vs. CASE NO.: 88-5128

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

Respondent.

/

FINAL ORDER

This cause came on before me for the purpose of issuing a final agency order. The Hearing Officer assigned by the Division of Administrative Hearings (DOAH) in the above-styled case submitted a Recommended Order to the Department of Health and Rehabilitative Services (HRS). A copy of that Recommended Order is attached hereto.

RULING ON EXCEPTIONS FILED BY THE DEPARTMENT

In this case the Hearing Officer concluded that a hospital is entitled to receive Medicaid reimbursement for treating a patient even though the hospital received payment in full from the patients insurance company under the contract between the hospital and the insurance company. The contract between the hospital and the insurance company provided that in return for the hospital being designated as a "preferred provider" by the insurance company, the hospital would charge discounted fees for treatment of covered patients with no liability to the patient for the difference between the normal charge and the discounted charge. The Hearing Officer concluded that the State is obligated to pay the difference if the insured patient happens to be Medicaid eligible.

Based on a review of the entire record and the applicable law, this conclusion is rejected.

Medicaid is a joint federal-state program, the purpose of which is to provide medical care to the poor, not to subsidize health care providers. See Pennsylvania Pharmaceutical Association vs. Department of Public Welfare, 542 F. Supp. 1349 (1982). The intent of Congress and the Legislature must be

considered in applying state and federal rules and regulations. Additionally, it is noted that improper payment of Medicaid benefits can result in financial sanctions against the state by the federal government.

Counsel for the department excepts to the Hearing Officer's conclusion expressed in both the conclusions of law and in the findings of fact that the discounted fees charged for treatment of the insured patients are not a benefit to the patient. This conclusion conflicts with other findings of fact that if the insured patient utilizes a hospital, such as the petitioner, which is designated a preferred provider by the insurance company, there is no liability to the patient for the difference between the normal charge for an uninsured patient and the discounted charge. The Hearing Officer's conclusion is an important link in her reasoning leading to her ultimate conclusion that the State is liable for the difference between the normal charge and the discounted charge. The Hearing Officer's conclusion falls within the rule under which an agency may substitute its judgment for that of the Hearing Officer where a finding is infused with policy insight for which the agency has special responsibility and also where the agency's substituted finding is supported by competent, substantial evidence. Baptist Hospital vs. Department of Health and Rehabilitative Services, 500 So2d 620, 623 (Fla. 1st DCA 1986), Westchester General Hospital vs. Department of Health and Rehabilitative Services, 419 So2d 705, 708 (Fla. 1st DCA 1982). I conclude that the discount under the insurance policy at issue is a benefit to the insured patient. The State is liable under the Medicaid program only to the extent there remains a patient liability after the liable third party (insurance company) has paid.

Counsel maintains that the Hearing Officer erroneously excluded from evidence a letter of March 6, 1989, from the Health Care Financing Administration. The Hearing Officer did not exclude the letter; she simply commented on its hearsay nature.

FINDINGS OF FACT

The Department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order except where inconsistent with the ruling on the exceptions.

CONCLUSIONS OF LAW

The Department hereby adopts and incorporates by reference the conclusions of law set forth in the Recommended Order except where inconsistent with the ruling on the exceptions.

Based upon the foregoing, it is

ADJUDGED, that Shands Teaching Hospital and Clinics, Inc. is obligated to reimburse the department for a total of $8,869.37 for Medicaid overpayments.

DONE and ORDERED this 22nd day of August, 1989, in Tallahassee, Florida.

Gregory L. Coler Secretary

Department of Health and Rehabilitative Services

by Deputy Secretary for Operations

COPIES FURNISHED:

David A. Roberts, III Shands Hospital

Box J-303 JHMHC

Gainesville, Florida 32610

James E. Thomison Shands Hospital Box J-303 JHMHC

Gainesville, Florida 32610

Carl Bruce Morstadt, Esquire Chief Medicaid Counsel Department of Health and Rehabilitative Services

1317 Winewood Boulevard

Building 6, Room 230

Tallahassee, Florida 32399-0700

John W. Hedrick, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd.

Building One, Room 407 Tallahassee, Florida 32399-0700

Diane Cleavinger Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Gary Clark (PDDM)

Deputy Assistant Secretary for Medicaid

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the foregoing was sent to the above-named people by U.S. Mail this 24th day of August, 1989.

R. S. Power, Agency Clerk Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700 904/488-2381

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF HRS, AND A SECOND COPY, ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 88-005128

Orders for Case No: 88-005128