STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SUNRISE COMMUNITY, INC., )

)

Petitioner, )

)

vs. ) Case No. 96-4608

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

) SUNRISE COMMUNITY, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-4349

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

) SUNRISE COMMUNITY, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-4942

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this matter on June 15 and 16, 1999, in Miami, Florida, before J. D. Parrish, a designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Steven M. Weinger, Esquire

Kurzban, Kurzban, Weinger & Tetzell, P.A.

2650 Southwest 27th Avenue Second Floor

Miami, Florida 33133

For Respondent: Steven A. Grigas, Esquire

Fort Knox Building 3 2727 Mahan Drive

Tallahassee, Florida 32308-5403 STATEMENT OF THE ISSUES

Whether Petitioner is entitled to the amounts claimed in the challenges to the IRR determinations as set forth in the cost settlement documents.

PRELIMINARY STATEMENT

This proceeding brings to closure disputes between these parties that began in 1995. At that time Petitioner, Sunrise Community, Inc., filed an IRR that was denied by the Agency for Health Care Administration (Agency or Department).

Subsequently, the denial went before an Administrative Law Judge who recommended that the interim rate adjustment sought by Petitioner be approved subject to auditing. The Agency took exception to this recommendation and entered a Final Order that was timely and successfully appealed by Petitioner.

Notwithstanding Petitioner’s success on appeal, the Agency did not implement the interim rate increases. Instead, the Agency determined it would seek cost settlement of the matter by

utilizing the actual costs incurred by Petitioner. More specifically, since the rate period had passed, the Department sought to use not the estimated costs that had been projected for the period (and had formed the basis of the IRR) but the actual allowable expenses incurred by Petitioner for the period in review. In doing so, the Agency determined it was complying with the portion of the Recommended Order that had approved the interim rate "subject to auditing."

When the parties were unable to reach a settlement of the disputed claims, the matter was again forwarded to the Division of Administrative Hearings for formal proceedings to resolve the conflicts. As to DOAH Case No. 96-4608, this case dealt with an agency action letter dated August 23, 1996, and concerned the IRR for the day program facility for the McCauley Cluster, the Mahan Cluster, and the Dorchester Cluster. The parties stipulated at hearing that the dispute regarding this case has been resolved. Accordingly, DOAH Case No. 96-4608 is hereby closed.

As to DOAH Case Nos. 98-4349 and 98-4942, there are three agency action letters in dispute; they are dated September 3, 1998, September 28, 1998, and October 12, 1998. As to the first of these letters, in computing the IRR the Agency removed all interest expense associated with the issuance of the 1993 bond. The Agency also deleted all costs pertaining to interest on the

outstanding balance of the IRR and legal fees incurred by Petitioner as to the IRR. Further, the Agency made adjustments to specific facilities as detailed in the letter. More specifically, a day program expense identified at the Bayshore Cluster was reduced to reflect four months of depreciation, and costs for the Pablo Avenue Community Services Site (Pablo) for the Mahan, McCauley, and Dorchester Clusters were reallocated based on a 365-day period. It is not disputed that Petitioner timely challenged these decisions.

As to the Agency action letter of September 28, 1998, the Department again deleted the interest expense associated with the issuance of the 1993 bond as well as the interest on the outstanding balance of the IRR. The legal fees associated with the litigation of the IRR were also backed out of the adjusted amounts. It is not disputed that Petitioner timely challenged this letter.

On October 12, 1998, the Agency issued an action letter for the Country Meadows IRR of September 3, 1996. While not technically within the scope of DOAH Case Nos. 98-4349 and 98- 4942, at the outset of the hearing the parties stipulated that the dispute regarding this letter should be included in the resolution of all claims evolving from the settlement process.

The cost settlement determination by the Agency in this letter

excluded amounts associated with the property and day program costs for Country Meadows.

At the hearing, Petitioner presented testimony from the following witnesses: Leslie W. Leech, Jr., the President and Chief Executive Officer of Sunrise Community, Inc.; John Alan Owens, a supervisor in the Agency’s Medicaid cost reimbursement section; Stanley William Swindling, a certified public accountant; and James Graham Weeks. Petitioner’s Exhibits numbered 1, 2, 3, 5A, 5B, 6, 9, 10, 11, 12, 15, 16, and 17 were admitted into evidence. The Agency offered testimony from John Alan Owens. Respondent’s Exhibits numbered 1, 2, 3, 6, 8, and

11 have also been received into evidence.

The Transcript of the proceeding was filed with the Division of Administrative Hearings on July 26, 1999. The parties were granted additional time to file proposed recommended orders. Such orders have been reviewed in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner, Sunrise Community, Inc., is a non-profit organization that offers assistance and support to people with developmental disabilities. It specializes in residential services but also provides day programs, supported living services, and other programs to assist people in the lower functioning ranges of mental retardation.

2. Respondent, Agency for Health Care Administration, is the state agency charged with the responsibility of administering and supervising Medicaid reimbursements.

3. At all times material to this cause, Petitioner was an authorized Medicaid provider. The quality of care provided by Petitioner and its facilities has never been disputed in this cause. The disputes in this matter arose due to challenges to the rates of reimbursement to Petitioner and its facilities.

4. In Florida, Medicaid providers such as Petitioner are reimbursed on a prospective basis. Each provider gets a rate for reimbursement that is established based upon the actual allowable costs from a prior, fixed period of time which is then utilized to pay for a subsequent time period. For convenience of review this rate is sometimes thought of as the "budgeted rate" in this record. It assumes costs from past experience will be incurred in the future and provides for a known, fixed amount of compensation to hopefully cover such expenses.

5. All Medicaid providers are required to disclose their actual costs for an entire reporting period. A cost report must be prepared using the accrual basis of accounting in accordance with generally accepted accounting principles as set forth in the rules governing Medicare reimbursement. After the fact, providers then "settle up" with the Agency by comparing the actual allowable costs incurred in the rate period with the

   rate. Providers cannot make a profit or excess revenue on the rate.

6. Where a rate for a given period proves to be too low or inadequate, the cost settlement procedure is designed to adjust the amounts owed to cover the deficit funding. Thus each Medicaid facility receives a rate which must be "cost settled" separately based upon its actual allowable expenses.

7. Petitioner and its related facilities are entitled to rates that will cover the actual allowable costs of doing business. Petitioner is not entitled to a profit nor is it required to operate at a loss.

8. Should a provider be overpaid, that is, if it is established during cost settlement that the rate received by the provider was more than the actual allowable costs incurred for the rate period, then the provider "repays" the overage to the Agency.

9. Otherwise, the rate is fixed for the time period it relates to unless an IRR is approved to increase the rate.

10. IRRs are submitted to the Agency when a provider’s rate does not provide adequate compensation.

11. An approved interim rate is to give assurance that the original rate can be adjusted to accommodate the new costs incurred by the provider.

12. Approved interim rates are also cost settled after the rate period as with budgeted rates.

13. In 1995 Petitioner sought approval of interim rate increases from the Agency. Such requests were denied by the Agency but successfully appealed by Petitioner. Thereafter, because the period governed by the rates had passed, the Agency sought to cost settle the amounts owed to Petitioner.

14. When the Agency refused to remit the court-ordered interim rate Petitioner lost the amount of the rate increase as well as an opportunity for use of those funds during the pending cases.

15. The parties attempted to resolve the amounts claimed by Petitioner through the cost settlement process. As to each denied claim, Petitioner sought an administrative review and the matter was forwarded to the Division of Administrative Hearings.

16. IRRs are designed to give providers relief so that unanticipated costs can be reimbursed. This is important since laws may change which require providers to offer additional programs or services the costs of which are not encompassed in the budgeted rate in effect at the time of the change in law.

17. At the time of settlement, if there is an overpayment of the difference between the approved interim rate and the actual allowable costs, the provider refunds the overpayment. Similarly, if there is an underpayment as a result of the actual

    allowable cost being greater than the interim rate, the provider is entitled to receive additional payment.

18. Petitioner is entitled to additional payments. The amount of the payments is the center of the disputes in this cause. First, the Agency has refused to remit monies associated with interest payments on a bond issue.

19. The Agency refused to include payment for the bond interest because it maintains that, while bond interest expense is an actual allowable cost incurred by Petitioner, it was reported twice in the cost reports.

20. The bond interest disallowed is itemized in Petitioner's Exhibit 17. Such exhibit accurately lists the amounts that the Agency should have approved for the IRR cost settlements for the facilities listed. The bond interest is appropriately allocated to the facilities listed and was not claimed or duplicated by another entity for the periods noted. Thus each of the listed facilities should have received an adjusted rate with the bond interest cost included in the calculation.

21. Secondly, Petitioner claims that had the Agency timely remitted the funds associated with the IRR, it would have had the benefit of those monies for the interim period of time. As such, it maintains it should be paid interest on the monies not paid.

22. The basis for the lost interest claim arguably stems from the Medicare rule that allows interest in some situations. Florida historically has not remitted interest on underpayment amounts. In calculating the amounts owed to Petitioner, interest lost on the IRR was therefore disallowed.

23. There is no provision governing the Florida Medicaid plan that specifies the payment of interest on a rate. A provider’s rate can be broken down into four cost components: operating, resident care, property, and return on equity.

24. Had Petitioner received the full IRR it might have been given a "return of equity" or "use allowance." It might have resulted in a positive average equity. Petitioner has not established through credible evidence that factually this "return of equity" would have been applicable to the situations of the facilities affected by the IRRs. Speculation as to the financial posture of the facilities has not been deemed persuasive.

25. The third dispute in this cause relates to the computation of the amounts owed for the Pablo facility. The Pablo facility incurred expenses over a 140-day period which were annualized over a 366-day period to compute the interim rate amount. In so doing, the Agency abandoned the methodology previously utilized to compute the rate owed and determined that the actual allowable costs in the subsequent period (which were

    known) had to be considered. Had the Agency used the established methodology it claims it would have overpaid the provider in the subsequent period. While mathematically accurate in this single example, such methodology has not been used except in this instance (when it benefited the Agency).

26. The abandonment of the methodology also ignores the cost settlement process that is designed to reconcile amounts after the fact. The plan used by these parties recognizes the settlement process as the procedure by which all actual allowable costs are reconciled. If after having received an inflated rate the Pablo facility had owed monies back, such funds would have been remitted through the cost settlement process.

27. Of course in this case, the Agency did not remit an increased rate so the crux of the problem is to resolve the dispute artificially as if from one point in time to another the rate had been appropriately increased. The settlement should have utilized the 140-day period to calculate the rate. That is, the per diem should have used the expense amount divided by

    140 not 366 to compute the daily expense.

    
    

28. The fourth disputed amount is the IRR for Country Meadows. The Agency has conceded that this IRR could have been granted with an accounting clarification.

29. The final disputed amount relates to attorney's fees.

    
    

    Petitioner maintains it is entitled to include an amount of attorney's fees that is based upon a contingency fee agreement. Although the Agency does not dispute that providers may include attorney's fees as an allowable cost, it argues that such costs are not reported until incurred. Moreover, such costs must be what a prudent buyer would pay and relate to the IRR.

30. In this instance the plan provides that:

    
    

    Implicit in any definition of allowable costs is that those costs do not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII principles of reimbursement, HCFA PUB 15-1 (1993), and this plan to exceed what a prudent buyer would pay, then the excess costs shall not be reimbursable under this plan.

    
    

31. Attorney's fees are considered part of the operating component of the rate calculation. It is an administrative cost and is reported on a provider’s cost report as such.

32. In selecting the attorneys to represent it, Petitioner did not interview applicants, solicit proposals, or inquire of other attorneys as to a reasonable fee for this type of representation.

33. Petitioner presented no credible evidence of the reasonable fee for representation in this type of proceeding.

34. Petitioner’s lead counsel served on its Board of Directors at the time the contingency fee agreement was entered into. The contingency fee agreement provided for an alternative method of payment in the amount of $250.00 per hour.

35. The attorney's fee agreement provided, in pertinent

part:

1. The attorney’s fee shall be 40% of the total of all funds received as a result of the reversal of the wrongful denial of the interim rate request covering the period from the date of filing the interim rate request through the date of final settlement. The lawyer shall have no claim on the future value of the interim rate request past the date of settlement. If an appeal is required the fee shall be 50% instead of 40%.

   
   

2. If, due to circumstances beyond the control of the parties to this fee agreement, such as changes in law, or constructions of law inconsistent with this agreement, including constructions of law that would not permit the reimbursement of attorney's fees to Sunrise Community, Inc., the parties agree that in no event shall the fee be less than a reasonable fee based on the hours of work multiplied by the rate of

   $250.00 per hour.

   
   

   1. The attorney's fee agreement was executed on October 25, 1995 on behalf of Sunrise Community, Inc. Such agreement did not name the facilities whose IRRs were governed by the agreement. The agreement did not specify how the attorney fee would be allocated among the providers who would be affected by the successful challenge to the IRR denials.

   2. The opinion of the First District Court of Appeal that upheld the IRRs and directed the Agency to grant them was entered on January 27, 1998.

      CONCLUSIONS OF LAW

      
      

   3. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

   4. The burden of proof in this cause is on Petitioner as the party asserting the affirmative on the issues. Florida Department of Transportation v. J.W.C. Company, 396 So. 2d 778 (Fla. 1st DCA 1981).

   5. In Florida Medicaid providers are paid on a prospective basis. They are entitled to rates that allow them to efficiently and economically provide a quality of care appropriate to the service rendered. In this cause the Agency has not claimed Petitioner or its facilities have not provided efficient or quality care. Medicaid providers are not required to operate in the deficit. Typically expenses to operate facilities are budgeted and covered by the rate such that when reconciled with the actual allowable costs the amounts owed from one to the other do not result in an adversarial posturing.

   6. As to each disputed amount, the Agency has disallowed the cost for a specified reason. For example, as to the Country Meadows IRR the denial was based upon the disputed amount going

      into the property versus the resident care component of the rate. By adjusting the amount to the resident care component the IRR would be approved.

   7. As to the denial of bond interest amounts, Petitioner has established that the amounts claimed were not duplicative expenses included on another cost report as claimed by the Agency. The facilities are entitled to claim the bond interest expense as an actual allowable cost. The amounts listed in Petitioner’s Exhibit 17 should be used to re-compute the amounts owed to Petitioner as it relates to the bond interest.

   8. As to the claim for interest on the amount between the rate amount and the unpaid IRRs, Petitioner has not established it is entitled to any definitive amount. The evidence presented was both speculative and indefinite. In this regard Petitioner failed to meet its burden of persuasion. Moreover, Petitioner failed to establish that the Medicaid reimbursement plan requires the payment of interest on the unpaid amount.

   9. Petitioner has met its burden of proof as to the Pablo claim. The Agency deviated from the accepted methodology when it failed to compute the Pablo expenses utilizing the 140-day period to establish the per diem amount. The Agency did not have the authority to abandon the established practice of computing the cost amount for the period over which the expense was incurred. That the costs subsequently were reduced does not

      authorize the rate computation as calculated by the Agency. Petitioner was entitled to a rate based upon the actual allowable costs for the 140-day period. In subsequent cost reports or settlements the rate would have been adjusted. Both the cost settlement process and the subsequent rate setting procedure would have taken into consideration the reduction in costs that followed in the subsequent period. Providers are entitled to a consistent methodology unless the Agency adopts rules or the plan provides for the contrary.

   10. As to the issue of attorney's fees, Petitioner failed to establish that an allowable cost was incurred during the IRR period. Pursuant to the agreement offered into evidence the earliest date Petitioner incurred attorney's fees was January 27, 1998. Had Petitioner not prevailed on appeal no fee would have been owed. Thus the allowable cost (in any amount) associated with the attorney’s fees could not have been incurred prior to that date. As such the attorney’s fees owed by Petitioner should be allocated among its facilities and disclosed as an administrative cost within the operating component of the rate. Under the Medicaid plan costs are charged to the period when they are incurred.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a Final Order that grants the bond interest as claimed by Petitioner; denies the interest on unpaid IRR amounts; grants the amounts claimed by Petitioner for Pablo; grants the Country Meadows IRR; and denies the attorney's fees.

DONE AND ENTERED this 30th day of December, 1999, in Tallahassee, Leon County, Florida.

J. D. PARRISH Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1999.

COPIES FURNISHED:

Steven M. Weinger, Esquire Kurzban, Kurzban, Weinger

& Tetzeli, P.A.

2650 Southwest 27th Avenue Second Floor

Miami, Florida 33133

Steven A. Grigas, Esquire

Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

Ruben J. King-Shaw, Director

Agency for Health Care Administration 2727 Mahan Drive, Suite 3116

Tallahassee, Florida 32308

Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of 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: 96-004608

Orders for Case No: 96-004608