of the Florida Title XIX Long-Term Care Reimbursement Plan since there was no requirement for a nursing home to possess liability insurance, and no laws, rules, or standards had changed warranting an interim rate increase. Brookwood challenged the determination and requested an administrative hearing.
At final hearing, Brookwood called one witness and offered seven exhibits into evidence. AHCA called two witnesses and offered four exhibits into evidence.
August 9, 2001.
Petitioners, Brookwood-Washington County Convalescent Center and Walton County Convalescent Center (Brookwood) are licensed nursing homes in the State of Florida.
The Brookwood facilities have historically been high Medicaid providers. Both participate in the Florida Medicaid program. Washington County Convalescent Center is currently 90 percent Medicaid and Walton County Convalescent Center is 85 percent Medicaid. The statewide average for all nursing homes in Florida is 50-55 percent Medicaid. Such high Medicaid participation makes Brookwood extremely sensitive to changes in its allowable costs and its ability to recover those costs.
Florida's Medicaid program is needs-based, providing nursing home care to persons eligible for such care who fall below a certain level of income and assets.
Medicaid is a "prospective" reimbursement program in that reimbursement to a nursing home is based on the facility's cost history adjusted or inflated to approximate future costs. Adjustments are made and reimbursement rates are set based on a nursing home's cost report for allowable costs it has incurred in the past year.
In determining allowable reimbursable costs, AHCA utilizes the Florida Title XIX Long-Term Care Reimbursement Plan, Version XIX, dated November 27, 1995 (Reimbursement Plan), the reimbursement principles of the Federal Medicare Program's Health Insurance Manual (also known as the Provider Reimbursement Manual, PRM, or HIM-15), and Generally Accepted Accounting Principles (GAAP) or accepted industry practice. In making determinations as to allowable reimbursable costs, one first looks to the Plan, then HIM-15 and finally, GAAP.
With certain exceptions not relevant here, The Florida Medicaid program reimburses all allowable costs, as those costs are defined in the Reimbursement Plan and HIM-15. Premiums paid by a nursing home for liability insurance are an allowable cost under the Reimbursement Plan. Allowable costs are broken out in the categories of property, patient care, and operating expenses. As indicated, in determining the prospective rate, AHCA inflates the reported allowable costs in each category forward subject to various class ceiling limitations and target limitations.
A class ceiling is an upper limit on the cost that will be reimbursed. A target limitation is a limit on the rate of increase of costs from year to year. In short, a nursing home provider may be under its class ceilings; however, any increase
in its costs that exceeds a certain percentage amount will not be recognized for reimbursement purposes.
After applying the inflation factor, the class ceilings and the target limitations to allowable costs, AHCA arrives at a per-patient, per-day rate that the nursing home will be paid during the next year.
Because nursing home reimbursement is prospective and subject to target limits, a nursing facility might be unable to recover its allowable costs of providing services if it experiences unanticipated expenses that cause its allowable costs to unexpectedly rise. In such cases, the Plan has provisions that allow, under very limited circumstances, an interim rate adjustment for an unexpected increase in costs. Such interim rate increases are covered in Section IV.J. of the Plan.
In 1999, Brookwood's liability insurance premium cost was $400,000 for its six Florida facilities and one North Carolina facility. In the year 2000, Brookwood's liability insurance premium cost increased to $4,000,000. Of that amount, the premium cost for Walton County Convalescent Center increased from $56,000 to $546,000 and the premium cost for Washington County Convalescent Center increased from $84,000 to $819,000. The premium increase occurred after Brookwood's rates had been set based on its 1999 insurance costs. Additionally, in
September of 2000, Brookwood's liability insurer left the state. Brookwood has since been unable to obtain liability insurance for its Florida facilities.
It was possible for Brookwood to self-insure, but it did not. Self-insurance is generally only feasible for facilities larger than Brookwood. However, the evidence did not demonstrate that Brookwood could not self-insure.
On May 30, 2000, faced with this unforeseen increase in liability insurance premiums, Brookwood applied to AHCA for an interim rate effective retroactively to January 1, 2000.
This was necessary because the large increase in costs would not be covered by the normal rate of inflation allowed by the department and the cost of the increase would not be recoverable through the normal prospective reimbursement methodology due to the lag time between the cost increase and the filing of the cost report. In addition, without an interim rate Brookwood would not receive an adjustment to its target rate, thereby, limiting reimbursement for any increased costs it did report on its cost reports.
Brookwood only requested interim rates for these two facilities because its other four facilities were at or above the cost ceilings and could get no relief from an interim rate. In other words, for those four facilities, Medicaid will not participate in payment for the extra costs incurred by the
increased liability insurance premiums. Even for the two facilities at issue here, if an interim rate is granted, AHCA will not reimburse for any costs that exceed the cost ceilings.
The increase of premiums and subsequent pull out by several insurance companies were part of a reaction to increased loss in the area of nursing home liability. The crisis was, in part, due to an increase in civil litigation against nursing homes being brought under Sections 400.022 and 400.023, Florida Statutes. Indeed, Florida's rate of nursing home liability litigation is significantly above the national average.
However, Florida's nursing home population is also significantly larger than the national average. However, the crisis was also due to many other factors which impact liability and rates in Florida. While there may be some debate about the causes of the increased litigation, there is no debate that the cost of liability insurance increased significantly over a short period of time with some insurance companies ceasing to write liability insurance for nursing homes in Florida.
The Agency denied Brookwood's request because no new interpretation of law by the state or federal government pertaining to liability insurance had occurred which caused Brookwood's costs to increase.
As indicated earlier, the Plan contains provisions that allow a nursing home participating in the Medicaid program to request an interim change in its reimbursement rate when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations and such costs are at least $5,000 or one percent of its per diem.
The language of Section IV.J.2 of the Estate's Long- Term Care Reimbursement Plan states that:
J. The following provisions apply to interim changes in component reimbursement rates, other than through the routine semi- annual rate setting process.
* * *
2. Interim rate changes reflecting increased costs occurring as a result of patient care or operating changes shall be considered only if such changes were made to comply with existing State or Federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1 percent or more in the provider's current total per diem rate.
Other subsections of Section J of the Reimbursement Plan deal with new requirements or new interpretation of old requirements. Those subsections do not apply in this case. The term standards as used in Section J refers to standards in the Reimbursement Plan, Section IV titled "Standards," the standards of care and operation detailed by the Medicaid program in its provider handbooks and such standards as are detailed in the
Code of Federal Regulations, and HCFA/HHS guidelines, as well as state statutes and rules. These standards are the usual or customary method or practice used by the nursing home industry to gain reimbursement from Medicaid. The term standards include reimbursement standards, methods or principles for medicaid providers.
In essence, a nursing home would have to incur additional or new costs to receive an interim rate adjustment. Brookwood's increase in insurance premiums was such an increase in costs, which would be allowable subject to ceiling and target limitations.
At the time of Brookwood's request, there was no specific requirement in the state Reimbursement Plan, state or federal law requiring that liability insurance be carried by a nursing home. Additionally, there was no change to the Reimbursement Plan, state, or federal law or regulation requiring that liability insurance be carried by a nursing home.
On the other hand, the reimbursement standards or requirements set forth in HIM-15 make it clear that a prudent Medicaid provider is expected to carry liability insurance or self-insurance in order to be reimbursed for any uninsured losses.
Specifically, Section 2160.2 of the Provider Reimbursement Manual states:
Liability damages paid by the provider, either imposed by law or assumed by contract, which should reasonably have been covered by liability insurance, are not allowable.
Section 2161 of HIM-15 states that the reasonable costs of such insurance are allowable. Section 2162.1 of HIM-15 states that losses in excess of the deductible or co-insurance are allowable costs so long as the amount of insurance was consistent with sound management practices. Section 2162.5 of HIM-15 recognizes the allowability of deductibles, so long as they do not exceed
10 percent of the entity's net worth or $100,000 per provider.
It also states that if you set a deductible higher than those amounts (or assume all the risk), any losses exceeding the
10 percent or $100,000 will not be allowable as recognized costs.
The general implication of these and other related sections of HIM-15 is that a prudent provider is expected to carry liability insurance or be self-insured. Thus, a provider will be reimbursed for the reasonable costs of liability insurance, any reasonable deductible, and any losses in excess of reasonable insurance coverage. These limitations on loss recovery or reimbursement are standards for purposes of
determining whether a interim rate increase is allowable. These standards were in effect at the time Brookwood's premiums increased. Thus, in order to comply with Medicaid's reimbursement standards, Brookwood had to remain insured or
self-insured. The choice of which type of insurance to utilize to meet the reimbursement standard is left to the provider.
Brookwood reasonably chose to insure through an insurance company. Since Brookwood was required to make such a choice in order to comply or conform to Medicaid's reimbursement standards, Brookwood is entitled to an interim rate increase.
However, the interim rate provisions of the Plan only recognize such rates submitted within 60 days prior to the date of the interim rate request. Based on this limitation, Petitioners' rate increase is limited to the increase in premium incurred 60 days prior to its interim rate request around
May 30, 2000.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and subject matter of this proceeding.
Petitioner bears the burden of showing that it is entitled to the interim rate requested. Florida Department of Transportation v. J.W.C. Company, 396 So. 2d 778 (Fla. 1st DCA
1981); Balino v. Department of Health and Rehabilitative
Services, 348 So. 2d 349 (Fla. 1st DCA 1977).
The Reimbursement Plan has been adopted and incorporated by reference in Rule 59G-6.040, Florida Administrative Code.
The applicable controlling rules, regulations, and principles governing Medicaid reimbursement are set forth in the Plan, HIM-15, and GAAP. In determining reimbursement issues, one first looks to the Plan, then to HIM-15, and finally to GAAP, in that order of priority.
An interim rate is meant to allow a provider under very limited circumstances to be reimbursed for unanticipated allowable costs that are not covered in their cost report.
Section IV.J.2. Of the Plan requires the changes creating the increased costs to be necessary for compliance with, "existing State or Federal rules, laws, or standards".
The requirements of HIM-15 are clearly "standards", as that term is used in Section IV.J.2. of the Plan. In Alabama Hospital Association v. Beasley, 702 F.2d 955 (11th Cir. 1983) (Appendix), the Eleventh Circuit Court of Appeals discussed the "standards" for reimbursement set forth in 42 C.F.R. HIM-15 is a compilation and codification of 42 C.F.R., Medicare reimbursement principles, which are utilized by Medicare. In maintaining liability insurance for its facilities, Brookwood
was acting as a prudent provider in accordance with the standards set forth in HIM-15. Those standards require that a provider maintain liability or self-insurance or face the risk of being unreimbursed for losses.
Because the parties agreed that Brookwood's liability insurance premiums were allowable costs and the increase in those costs met the threshold criteria of Section IV.J.2. of the Plan, the fact that Brookwood incurred increased costs to comply with recognized Medicaid reimbursement standards makes Brookwood's request for an interim rate based on those increased costs allowable under the Plan.
