STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

QUALITY HEALTH CARE CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 94-0164

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer William F. Quattlebaum, held a formal hearing in the above-styled case on April 28, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Peter A. Lewis, Esquire

307 West Park Avenue Post Office Box 1017

Tallahassee, Florida 32302-1017

For Respondent: Heidi Garwood, Esquire

1317 Winewood Boulevard

Building 6, Room 234

Tallahassee, Florida 32399-0700 STATEMENT OF THE ISSUE

The issue in this case is whether the "hold harmless" provision of the Title XIX Long-Term Care Reimbursement Plan should apply to the Petitioner's Medicaid reimbursement as calculated by the Respondent.

PRELIMINARY STATEMENT

By letter of September 24, 1993, the Agency for Health Care Administration (AHCA) advised Quality Health Care Center (Quality) that adjustments to Quality's Medicaid reimbursement rate were being made for the semiannual rate cycles beginning July 1, 1989 through July 31, 1993, Based on the adjustment, the AHCA advised Quality that the AHCA had overpaid $212,574.32 to Quality and that the amount was due.

Quality requested a formal administrative hearing. The request was forwarded to the Division of Administrative Hearings which scheduled the matter for hearing. The case was transferred to the undersigned on April 25, 1994.

At the hearing, the Petitioner presented the testimony of four witnesses and had exhibits numbered 1-3 admitted into evidence. The Respondent presented

the testimony of two witnesses. Joint exhibits numbered 1-4 were admitted into evidence. A prehearing stipulation filed by the parties was admitted as a Hearing Officer's exhibit.

A transcript of the hearing was filed on May 18, 1994. Both parties filed proposed recommended orders. The proposed findings of fact are ruled upon either directly or indirectly as reflected in this Recommended Order, and in the Appendix which is attached and hereby made a part of this Recommended Order.

FINDINGS OF FACT

1. The Medicaid reimbursement program is a joint state and federal program which provides reimbursement to Florida-licensed nursing homes for long-term care provided to Medicaid eligible persons.

   
   

2. The Florida Title XIX Long Term Care Reimbursement Plan (Plan) governs reimbursement to nursing homes for the provision of Medicaid services.

   
   

3. The Agency for Health Care Administration (AHCA) is the State agency responsible for implementation of the Medicaid program in the State of Florida. The AHCA is the successor in interest to the Department of Health and Rehabilitative Services, the agency originally responsible for Medicaid reimbursement.

   
   

4. At all times material to this case, Quality Health Care (Quality) is and has been a provider of services for purposes of the Medicaid program.

   
   

5. Medicaid per diem reimbursement rates for nursing home care were historically based on a "cost" system, which included four components: operating costs, patient care costs, property asset costs and return on equity.

   
   

6. Re-valuation of property due to property asset sales and refinancing mechanisms, resulted in a steadily increasing property cost component to the reimbursement formula.

   
   

7. The Federal Deficit Reduction Act of 1984 (DEFRA) was enacted in part to limit the effect of property asset re-valuation on reimbursement.

   
   

8. The DEFRA restricted the "step up" in property costs which occurred when existing facilities were sold and existing property was re-valued. The actual effect of the DEFRA provisions was to freeze property cost reimbursement.

   
   

9. In response to DEFRA, the State of Florida revised its reimbursement program in 1984-85 to shift from the traditional cost system to the fair rental value system (FRVS.)

   
   

10. The FRVS, designed to provide an alternative to the DEFRA imposed limits, was created by the State of Florida and the nursing home industry to address the industry's concerns about the effect of DEFRA on reimbursement rates and cash flow.

    
    

11. The FRVS methodology imputes a provider's property asset value and indexes the value to specified inflation factors. A provider is reimbursed for a portion of the indexed value rather than actual property costs. The methodology itself is not at issue in this proceeding.

12. On October 1, 1985, the State of Florida implemented Medicaid reimbursement on the FRVS program.

    
    

13. At the time of implementation of the FRVS, it was determined that application of the FRVS should be temporarily deferred for some providers. The temporary deferment was intended to protect existing providers committed to long term property liability in anticipation of cost reimbursement rates from being injured by the altered reimbursement program and the resulting reduction in reimbursement rates.

    
    

14. In order to provide for deferment of the FRVS, the creators of the system created a "hold harmless" provision designed to protect providers in existence and enrolled in the Medicaid program prior to the October 1, 1985 FRVS implementation date by continuing to reimburse such providers under the cost system for an extended period of time.

    
    

15. For purposes of the "hold harmless" provision, Quality was in existence and was enrolled in the Medicaid program on October 1, 1985.

    
    

16. In creating the FRVS and hold harmless provision, it was clear that facilities qualifying for cost reimbursement under the hold harmless system would receive a benefit unavailable to FRVS-reimbursed providers. It was necessary to create a mechanism by which the advantage of cost reimbursement could be negated.

    
    

17. Accordingly the creators determined that the continued cost reimbursement would, be viewed as an "overpayment" by the agency to the facility which would need at some future date to be repaid. The overpayment is known as the "hold harmless payback liability."

    
    

18. Because actual property costs decrease over time due to depreciation and retirement of debt, a provider's cost reimbursement eventually becomes less than the projected FRVS reimbursement rate. When a provider's projected reimbursement under the FRVS exceeds the costs system reimbursement, a provider would normally become entitled to reimbursement at the higher rate.

    
    

19. In order to collect the hold harmless payback liability, a provider in the hold harmless program otherwise entitled to the higher FRVS reimbursement receives only cost reimbursement until the point when the "overpayment" by the agency has been "reimbursed." When the hold harmless payback liability is extinguished, the provider receives full FRVS reimbursement.

    
    

20. Plan section IV.D. provides that during the transition period, some facilities shall continue receive cost reimbursement until such time as FRVS payments exceed cost reimbursement as specified in Section V.E.1.h. of the Plan, at which time a facility shall begin reimbursement under the FRVS. Plan section

    IV.D. provides as follows:

    
    

    Effective October 1, 1985, a fair rental value system (FRVS) shall be used to reimburse facilities for property. To prevent any facility from receiving lower reimbursement under FRVS than under the former method where depreciation plus interest costs were used to calculate payments, there shall be a transition period in which some facilities shall continue to

    be paid depreciation plus interest until such time as FRVS payments exceed depreciation and interest as specified in Section V.E.1.h. At that time a facility shall begin reimbursement under the FRVS. Facilities

    entering the program after October 1, 1985 that had entered into an armslength (not between related parties) legally enforceable agreement for construction or purchase loans prior to October 1, 1985 shall be eligible for the hold harmless clause per Section V.E.1.h.

    
    

21. Plan section V.E.1.h. sets forth the hold harmless provision and provides that if after calculation of the FRVS rate FRVS reimbursement is lower than cost reimbursement, a facility shall continue to receive cost reimbursement until such time as the hold harmless payback liability is extinguished. Plan section V.E.1.h. provides as follows:

    
    

    A "hold harmless" provision shall be implemented to ensure that facilities existing and enrolled in the Medicaid program at October 1, 1985 do not receive reimbursement for property and return on

    equity or use allowance under the FRVS method less than the property cost reimbursement plus return on equity or use allowance given at September 30, 1985. If, after calculation of the FRVS rate, that reimbursement would be lower than depreciation plus interest costs under III.G. 3.-5. of this plan, a facility shall continue to be reimbursed depreciation plus interest according to III.G. 3.-5. of this plan until such time as the net difference in total payments between III.G.

    3.-5. and FRVS is -0-.

    
    

22. Plan section III.G. 3.-5. provides the methodology for calculation of cost reimbursement.

    
    

23. As of October 1, 1985, Quality's cost reimbursement exceeded the FRVS reimbursement and the "hold harmless" provision was applicable to Quality.

    
    

24. As of October 1, 1985, Quality was entitled to cost reimbursement under the "hold harmless" provision based on the Plan provisions cited herein.

    
    

25. The Medicaid program establishes reimbursement rates on a semiannual basis. Rates are communicated to providers via rate notices.

    
    

26. For all periods except the July 1, 1987 and January 1, 1988 rate cycles, Quality's cost reimbursement rate exceeded the projected FRVS reimbursement rate.

    
    

27. For the July 1, 1987 and January 1, 1988 rate cycles, Quality's cost reimbursement rate was less than the projected FRVS reimbursement rate.

    
    

28. The rate fluctuation experienced by Quality in the July 1, 1987 and January 1, 1988 rate periods is best described as an anomaly.

29. On August 19, 1993, the agency issued a retroactive notice of rate adjustment from cost to FRVS beginning in the July 1989 rate cycle and for all subsequent periods.

    
    

30. The evidence is unclear as to why the retroactive rate adjustment was to become effective beginning in the July 1989 rate cycle.

    
    

31. By letter of September 24, 1993, the AHCA notified Quality that its hold harmless payback liability was $212,574.32.

    
    

32. The agency asserts that based on Plan section IV.D., Quality should be shifted to the FRVS reimbursement program based on that fact that for the two rate cycles beginning in July 1, 1987, FRVS reimbursement payments exceeded costs reimbursement.

    
    

33. The agency's position is contrary to the language of Plan section

V.E.1.h. (the hold harmless provision) which states as follows:

...If, after calculation of the FRVS rate, that reimbursement would be lower than depreciation plus interest costs under

III.G. 3.-5. of this plan, a facility shall continue to be reimbursed depreciation plus interest according to III.G. 3.-5. of this plan until such time as the net difference in total payments between III.G. 3.-5. and FRVS is -0-.

1. Based on the Plan provisions cited herein, for the July 1, 1987 and January 1, 1988 rate periods, and for the subsequent period within the time frame at issue in this proceeding, Quality would be entitled to cost reimbursement because the net difference in total payments between cost and FRVS has not reached zero.

   
   

2. It is not unusual for reimbursement rates to be set at times other than at the beginning of a rate cycle. Such rate changes result in additional rate notices to providers. On three occasions, the agency sent notices to Quality stating that the reimbursement rate was being set at the lower FRVS level. On each occasion, Quality inquired and was informed that the reimbursement rate would remain at cost.

   
   

3. The AHCA asserts that the responses to the Quality inquiries were erroneous and that it is entitled to correct the errors. Quality asserts that it relied to its detriment on the responses to its inquiries and that the agency should be estopped from retroactively altering the reimbursement mechanism under which Quality is paid.

   
   

   CONCLUSIONS OF LAW

   
   

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

   
   

5. The Petitioner has the burden of establishing by a preponderance of the evidence that the challenged agency action is incorrect. Balino v.

   Department of Health and Rehabilitative Services, 348 So.2d 349 (1st DCA 1977). In this case, the burden has been met.

   
   

6. An agency's interpretation of its rules is entitled to great deference. Maclen Rehabilitative Center v. DHRS, 588 So.2d 12 (Fla. 1st DCA 1991). Nonetheless, an agency's interpretation of its own rules will be overturned where the interpretation is clearly erroneous. Pershing Industries, Inc. v Dept. of Banking & Finance, 591 So.2d 991 (Fla. 1st DCA 1991).

   
   

7. The primary issue in this case is under which method should the Petitioner receive reimbursement for care provided to Medicaid clients. Under the clear language of the Florida Title XIX Long Term Care Reimbursement Plan, currently the Petitioner is to be reimbursed under the cost system.

   
   

8. Plan section IV.D. states that some facilities shall continue to be paid on a cost basis until such time as FRVS payments exceed depreciation and interest as specified in Section V.E.1.h. Section V.E.1.h. establishes the hold harmless provision and states that if, after calculation of the FRVS rate, the FRVS rate is lower than the cost reimbursement rate, a facility shall continue to be reimbursed at the cost rate until such time as the hold harmless payback liability is zero.

   
   

9. In the instant case, Quality's cost rate has exceeded the FRVS rate for all but two rate cycles since the inception of the hold harmless program. The two rate cycles during which Quality's FRVS rate exceeded its cost rate are acknowledged by all parties to be an anomaly. After the two cycles had passed, Quality's cost rate again exceeded the FRVS rate and at the time of the hearing continued to do so.

   
   

10. Section V.E.1.h., the hold harmless provision, clearly states that where the FRVS rate is lower than the cost reimbursement rate, a facility shall continue to be reimbursed at the cost rate until such time as the hold harmless payback liability is zero. Quality's hold harmless payback liability exceeds zero.

    
    

11. The AHCA asserts that other providers in like cases have been shifted to the FRVS and have not been permitted additional reimbursement under the cost system. The evidence is insufficient to establish that other providers have encountered the same circumstances as has Quality. The AHCA cited no specific instances which would permit a direct comparison between this case and any prior case.

    
    

12. The AHCA argues that under the Plan, once a provider's cost rate is exceeded by the FRVS rate, the provider is limited to the less of the two rates until such time as the hold harmless payback liability is extinguished. The Plan includes no provision which specifically supports this position.

    
    

13. The AHCA states that the purpose of the hold harmless mechanism was to protect the cash flow of providers while eventually moving all providers to the FRVS and that continuing to reimburse Quality under the cost system results in an increase in Quality's hold harmless liability. The Plan includes no deadline for the completion of the hold harmless program or for satisfaction of the hold harmless payback liability. There is no limitation on the amount of hold harmless payback liability a provider may incur.

    
    

14. Both parties address the issue of whether an agency may correct a "mistake" and whether an agency may be estopped from enforcing its rule based on

the party's reliance on said "mistake." The AHCA asserts that, due to the workload of Medicaid program reimbursement personnel, mistakes can be made, that the three "corrections" provided to Quality were mistaken and that, according to the Plan, Quality should have been shifted to the FRVS reimbursement mechanism. Quality asserts that it relied to its detriment on the agency's "corrections" in obtaining additional facility financing and that the agency should be estopped from retroactively amending the reimbursement rate. Based on the findings of fact set forth herein, it is unnecessary to resolve this disagreement.

RECOMMENDATION

Based on the foregoing, it is hereby RECOMMENDED that the Agency for Health Care Administration enter a Final Order providing that Quality Health Care Center continue to be reimbursed under the cost reimbursement system until such time as Quality's hold harmless payback liability is extinguished.

DONE and RECOMMENDED this 29th day of June, 1994 in Tallahassee, Florida.

WILLIAM F. QUATTLEBAUM

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 29th day of June 1994.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-0164

To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties.

Petitioner

The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows:

24. Rejected, cumulative.

27-28. Rejected, unnecessary.

30. Rejected, unnecessary.

39-56. Rejected, unnecessary.

Respondent

The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows:

8. Rejected, cumulative.

11. Rejected, not supported by cited testimony. 20-23. Rejected, unnecessary.

24. Rejected as to use of term "discovered." ,The agency had sent three notices Quality prior to the August 1993 action.

26-36. Rejected, unnecessary.

37. Rejected, irrelevant. The testimony is clear that the drafters of the Plan did not contemplate the situation at issue in this case.

40-43. Rejected, irrelevant, not supported by the greater weight of the evidence. There is no credible evidence that any other provider has experienced this situation. Further, such treatment would be contrary to the clear provisions of the Plan.

47. Irrelevant. There is no deadline for payment of hold harmless payback liability.

48-52. Rejected, unnecessary.

COPIES FURNISHED:

Douglas M. Cook, Director 2727 Mahan Drive

Tallahassee, Florida 32308

Harold D. Lewis, Esquire The Atrium, Suite 301

325 John Knox Road Tallahassee, Florida 32303

Peter A. Lewis, Esquire

307 West Park Avenue Post Office Box 1017

Tallahassee, Florida 32302-1017

Heidi Garwood, Esquire 1317 Winewood Boulevard

Building 6, Room 234

Tallahassee, Florida 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the Final Order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 94-000164

Orders for Case No: 94-000164