The Issue Whether or not certain cost items disallowed in the Department of Health and Rehabilitative Services' audit report of Fountainhead Nursing and Convalescent Home, Respondent, for fiscal year ending June 30, 1977, were proper and, therefore, should be sustained.
Findings Of Fact During the course of the hearing, there was little dispute regarding the facts here involved. By letter dated March 21, 1979, Saul H. Silverman, C.P.A., requested an administrative hearing for the Fountainhead Nursing and Convalescent Home, Petitioner, provider No. 20043-0, due to certain audit adjustments based on an audit of the provider's Medicaid Cost Report for the fiscal year ending June 30, 1977. The audit in question was performed by Laventhol & Horwath, C.P.A.'s under contact with the Department of Health and Rehabilitative Services, Tallahassee, Florida. Bamberg, Superstein & Co., Certified Public Accountants, represent the Petitioner, Ni-Bud, Inc., T/A fountainhead Nursing and Convalescent Home, 390 Northeast 135th Street, North Miami, Florida, and prepared the Medicaid Cost Report for June 30, 1977. The Petitioner requested a hearing based on a disagreement with the following adjustments made by the auditors: 1. Administrator's compensation disallowed disallowed $37,162.00 2. Medical records expense disallowed 465.00 3. Oxygen income offset of expense 1,078.00 4. Method of computing Medicaid per diem cost by using cost finding methods not reflected in the instructions for preparation of the Cost Reports. During the hearing, Respondent agreed to permit the allowance for oxygen which had been previously disallowed provided Petitioner establish via documentation that the costs reflected for oxygen were, in fact, used only for emergencies. Documentation to that effect has been submitted and the oxygen income offset expense is no longer at issue herein. Additionally, based on an audit update received July 5, 1979, a review of the medical records expense, which expense was previously disallowed, was allowed during the updated audit. Therefore, the medical records expense is no longer at issue. What is remaining at issue herein are the items respecting the Administrator's compensation and the method of computing Medicaid per diem costs by using cost findings methods not reflected in the instructions for preparation of cost reports. The amount disallowed for the Administrator's compensation was an amount of $37,162. The total compensation allowed for the Administrator, Joseph Mossey, was $61,140. In the auditor's determination, a reasonable compensation for the Administrator was $23,978. Petitioner disallowed what it determined to be a "bonus" as such was not related to patient care. Kenneth Conners, Jr., an employee of Petitioner in the auditing section, appeared and testified respecting the manner in which cost adjustments are made. He testified that the cost reports submitted are primarily used for prior years and to determine interim per diem rates for the following year. He testified that cost reports result in no adjustment for Medicare rates and administrator's salary. He testified that with respect to the issues surrounding the disallowance of the Administrator's "bonus," the question centered around whether the money was in fact earned. Additionally, he testified that consideration is given to whether the "bonus" is reasonable; whether it is related to patient care and that in reaching a decision, consideration is given to allowable costs for bonuses in similar facilities in various regions of the country. Conners testified that based on figures contained in a publication issued by Commerce Clearing House, Inc. (CCH), the Administrator's bonus disallowed for this facility was proper. For example, he pointed out that in the Arkansas region the lower figure for comparable administrators is $19,500, with an upper range of $30,000. In Texas, the lower compensation is around $15,000, an upper range is $37,000 and the mean figure is $24,600. In New York, a similar figure results in compensation in the lower range of $8,100, an upper range is $32,500 and a mean compensation figure is 419,600. Conners cited a $9,000 lower range in California, an upper range of $26,00 and a median of $15,000. In Florida, the lower range for a comparable facility was $12,297, an upper range of $67,044 and a mean range of $19,588. He testified that when making its determination, Respondent utilizes a manual, HIM Section 22.01(2) and the guiding standard therein is whether or not the amounts are reasonable and related to patient care. Petitioner disagrees with Respondent's determination and points out that inasmuch as its Administrator, Joseph Mossey, is not a stockholder of the Respondent corporation, Ni-Bud, Inc., and is not related in any manner to any stockholder of the corporation, the amount that should be allowable compensation for him is not governed by the rules for owner's compensation as contained in regulation Section 405.425 and HIM-15-1, Chapter 9. Instead, he pointed out that the general rule of reasonableness, necessity, prudent buyer concept and expenses related to patient care are the pertinent considerations (Regulations 405.451 and HIM-15-1, Chapter 21) and should controlling. It is undisputed that Mr. Mossey's function as an administrator is necessary and related to patient care. The disagreement thus, centers around the reasonableness of the compensation and whether the Respondent's owners were acting as "prudent buyers" as that concept applies to the Medicaid reimbursement. As stated, Mr. Mossey is not an owner of the facility and, therefore, all employment contracts and compensation arrangements must be assumed to have been negotiated at "arms length." Regulation Section 405.451(c)(2) and (3). Subsections (2) and (3) of the above regulation provide in pertinent part that: The cost of provider's services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision entitled XVIII of the act for the payment of reasonable cost of services is intended to meet the actual cost, however widely they may vary from one institution to another. This is subject to a limitation where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors. The determination of reasonable costs of services must be based on costs related to the care of beneficiaries of Title XVIII of the act. Reasonable cost includes all necessary and proper expenses incurred in rendering services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, where the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services, (that is, those items of services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amount will not be allowable. The reasonable cost basis of reimbursement contemplates that the providers of services will be reimbursed the actual cost for providing quality care, however widely the actual costs may vary from provider to provider and from time to time for the same provider. HIM-15-Part I, Section 2103 entitled, "Prudent Buyer," states that: In those cases where an intemediary notes that a provider pays more than a going price for a supply or service, in the absence of clear justification for the premium, the intermediary will exclude excess cost in determining allowable costs under Medicare. There is no question but that Mr. Mossey's compensation is higher than the average nursing home administrator. Respondent contends that Mr. Mossey's duties, management skills and background justify this higher than normal rate of compensation. Joseph Mossey, Administrator of the subject facility since October 1970, appeared at the hearing and testified respecting his background and duties at the provider. He testified that prior to becoming an administrator for the subject facility, he had been a supervisor in nusing services for Eastman Kodak Company. Prior thereto, he had operated a nursing home in Saudi Arabia and had also served as a private duty nurse. At the outset of his employment relationship with the provider, he initially hired a more competent staff and paid better salaries to recruit, attract and retain competent employees. He testified that since becoming administrator in 1970, the facility has enjoyed an excellent rating from the Respondent, resulting in only one citation during 1977 and two citations in 1978, none of which were related to patient care. Additionally, he testified that he is on call twenty-four hours daily and that he is called upon to answer and respond to all emergency situations and make emergency policy decisions. During the first seven years of his employment as administrator, which of couse covers part of the period in question, Mossey worked seven days a week plus holidays. Mossey attends seminars and workshops on a continuous basis and keeps abreast of changing trends in nursing home care. This aids in enabling him to better provide quality care at a reasonable rate. Evidence reveals that Mr. Mossey's experience and management skills have kept the rise in the cost of providing care of the subject facility at levels far below industry averages. The following is the cost per patient day at the facility, excluding fixed expenses, since 1970. FISCAL YEAR JUNE 30, AMOUNT PERCENT OF CHANGE 1970 $10.53 -0- 1971 9.95 -5.5 1972 9.57 -3.8 1973 9.41 -1.7 1974 9.82 +4.3 1975 11.41 +16.1 1976 12.50 +9.5 1977 13.76 +10.1 1978 15.25 +10.8 Since 1970, the cost per day is up approximately 45 percent or about 5.6 percent per year on average. During the same period, evidence reveals that the coinsurance rate paid by Medicare patients, which is set up annually by the U.S. Department of Health, Education and Welfare and based on the average per diem charge in a hospital, has gone up form $5.50 to $18.00, or 177 percent. This, of course, reflects a higher rate of cost increase in the healthcare industry as a whole, then in the Respondent's case. It appears that the Respondent is thus keeping the cost of operating the nursing home lower than the norm and, of course, a derivative benefit to the State Medicaid/Medicare Program through a lower reimbursement rate. Industry surveys indicate that from 1972 through 1976 nursing home costs increased 45.56 percent. The Respondent's costs for the same period increased by 25.6 percent. Since July 1, 1974, when Medicaid initiated their cost related reimbursement rates, the Respondent has consistently been under the maximum cost reimbursement cap set by the Medicaid program. The following examples are illustrative: YEAR REIMBURSEMENT RATE CAP 1974 $493.00 $550.00 1975 527.00 600.00 1976 575.00 630.00 1977 615.00 680.00 1978 600.00 2/ 778.00 The State cap, which represents the level at which approximately 60 percent of Florida nursing homes being run efficiently would be fully reimbursed for their costs, has risen 41.5 percent. Contrawise, the Respondent's rate has risen only 21.8 percent. Mr. Mossey has thus kept his costs lower than the industry average. This cost savings of approximately $3.18 per patient day more than compensates for the $.71 per day cost of Mr. Mossey's higher than average compensation. Therefore, it appears that the Respondent was justified in paying a higher than normal compensation to its Administrator under the prudent buyer and reasonableness concepts. I shall so recommend. The final item of contention is the cost finding method used by the auditors to determine Medicaid's share of the Respondent's operating costs. The auditors used a two-step method of allocation. First, the auditors determine allowable costs for the entire nursing home. Next, the auditors remove the patient days and costs of services for Medicare patients. It should be noted, that the entire facility is Medicaid certified. Using the remaining patient days and costs, the auditors calculated the per diem amount to be used to allocate operating costs to Medicaid patients. The Medicare costs and patient days removed were determined from the facility's Medicare Cost Report filed with that program. Medicare, however, uses a more sophisticated method of allocating costs than Medicaid. Medicaid is a full coverage program but all services, for example, physical therapy, speech therapy and drugs, are not covered by Medicaid. It is the Medicaid payments that are here involved and which Petitioner contends are computed after deductions and operating costs are made for those costs associated with Medicare. Based on the July 5, 1979, audit update report, a revision adding back a net effect for recomputing the Medicare adjustment based on audited Medicare cost reports resulted in an overpayment figure of $24,887 to the provider. Respondent contends that making the adjustments here involved resulted in removing costs which affect the average cost per patient day. It is also contended that the majority of those deductions come from the full-care patients which have the highest per diem cost and this results in lower payments to the provider. Responder urges that by isolating Medicare costs and removing them from the remaining costs for the nursing home prior to calculating the per diem cost of operation, the auditors have violated the Medicaid principles of reimbursement. Finally, Respondent contends that based on cost report instructions and instructions received from the Medicare program which is based on that program's more sophisticated cost reimbursement formula, the auditors should not enter into the calculation, the nursing home's determination of costs allocated to the Medicaid program. The Social Security Health Insurance Act in 42. U.S. COde 1395(x)(v)(i)(a), is the guiding standard for determining cost payments for the Medicaid/medicare program reimbursement formulas. That section provides in pertinent part that: The reasonable costs of any services shall be the costs actually incurred, excluding therefrom any part of the incurred costs found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included . . . such regulations shall (i) take into account both direct and indirect cost of providers of services (excluding therefrom any such costs, including standby costs, which are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the insurance programs established under this title) in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title would not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance program. . . . Regulations promulgated in accordance with the above statute are contained in 42 CFR 405.451(b)(l) which provides in pertinent part that: The objective is that in determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. Considertion of the above-quoted provisions require that all costs relating to Medicare patients be separated out in determining the costs for which reimbursements will be made under Medicaid. The Medicare adjustments here presented are for the purpose of accomplishing this objective and/or adjustments that the Respondent is required to make. From the foregoing, it is concluded that the revised update audit report dated July 2, 1979, properly gives consideration to the requirements of the above-quoted provisions. It is, therefore, RECOMMENDED that Fountainhead Nursing Convalescent Home be required to remit the overpayments as reflected in the July 2, 1979, audit update, or in lieu thereof, that these overpayments be deducted from future Medicaid payments to Respondent. Additionally, it is recommended that the Petitioner credit the Respondent with the amount of $37,162 for fiscal year ending June 30, 1977, which amount represents the amount previously disallowed for the Administrator's compensation. RECOMMENDED this 30th day of August 1979, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact Introduction Petitioner, New Riviera Health Resort, Inc. (New Riviera or petitioner), operates a fifty-two bed nursing home at 6901 Yumuri Street, Coral Gables, Florida. The facility is licensed by respondent, Department of Health and Rehabilitative Services (HRS). At all times relevant hereto, New Riviera was a participant in the Florida Medicaid Program. Respondent is designated as the state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act. In this regard, HRS requires providers such as New Riviera to follow cost reimbursement principles adopted by the federal government. These principles, rules and regulations are codified in publications known as HIM-15 and the Cost Provider Reimbursement Manual. Pursuant to Rule 10C-7.48(4)(a)5.a., Florida Administrative Code, petitioner filed a cost report for its fiscal year ending November 30, 1983, reflecting what it perceived to be its reimburseable costs for providing Medicaid services during the fiscal year. The cost report was audited by HRS field auditors in 1984. Thereafter, on March 20, 1985, HRS issued a Schedule of Audit Adjustments, Statement of Costs, and Statement of Cost and Statistics. As is pertinent here, the Schedule of Audit Adjustments recommended that reimburseable costs be reduced by $71,561.00 in order to bring the cost report in conformity with Federal and State Medicaid reimbursement principles.1 These adjustments relate to the owner's salary and fringe benefits ($50,246), certain roof repairs ($11,613.00), a pension plan contribution ($6,000), and the write-off of certain assets ($3,772). Prior to the preparation of the above reports, an exit conference was held by HRS representatives and petitioner to discuss the proposed adjustments. When no resolution was reached, the reports were issued. That precipitated the instant proceeding. Owner's Salary & Benefits ($50,246.00) Petitioner's facility is owned by Shirley El. St. Clair. Using an HRS formula, New Riviera allocated $30,934.00 of her total salary during the fiscal year to the cost report for reimbursement. It also sought to be reimbursed for $2,312.00 in related payroll taxes, and $17,000.00 for pension plan contributions. All were disallowed by HRS on the ground the costs were "unnecessary" under applicable federal regulations. Specifically, Section 902.2 of HIM-15 provides in part that compensation paid to an owner may be included in allowable provider cost "only to the extent that it represents reasonable renumeration for managerial, administrative, professional, and other services related to the operation of the facility and rendered in connection with patient care." The regulation goes on to provide that "services rendered in connection with patient care include both direct and indirect activities in the provision and supervision of patient care." The same section prohibits reimbursement where services rendered are not related to either direct or indirect patient care but are, for example, rendered "for the purpose of managing or improving the owner's financial investment." The agency takes the position that Ms. St. Clair's efforts are focused in the direction of managing and improving her investment, and that her salary and benefits should be accordingly disallowed. It also contends that the facility had three licensed administrators during fiscal year 1983, and that New Riviera does not need that number to adequately operate a 52- bed facility, which is small by industry standards. St. Clair has been owner-president-administrator of the facility since its inception some thirty two years ago. In response to an audit inquiry, St. Clair gave the following description of her duties: . . . in general terms. I am the Chief Executive Officer of the Corporation and Trustee of the New Riviera Pension Trust. Though I no longer keep regular business hours in the traditional sense, I generally work a 30-50 hour week depending on circumstances, frequently on weekends. Much of my time is spent managing the financial aspect of New Riviera and the Pension Plan. I do most of the banking and a great deal of the grocery and "odds and ends" shopping for New Riviera. At final hearing she described her working hours in 1983 as being "irregular"; but still totaling 30 to 50 hours per week. Her duties included "a bit of everything," including keeping the books, admitting patients, performing marketing and banking activities, and relieving other personnel on weekends. There is no dispute that St. Clair has a voice in all business decisions of the nursing home. Because there are no secretaries or receptionists employed by the facility, she also performed various secretarial tasks. During the fiscal year in question, St. Clair also had two other licensed and full-time individuals performing administrative duties. One was a Mrs. Campbell whose primary duty was to keep the books while the other was her son, Michael, who acted as assistant administrator. According to St. Clair, Michael has a masters -degree in health care administration, supervised the maintenance of the facility, and was there "just to learn the business" in anticipation of her retirement. He recently left New Riviera in September, 1985 and had not been replaced as of the time of final hearing. Mrs. Campbell still remains on the payroll. HRS has allowed Campbell's and Michael's salary and fringe benefits but has proposed to disallow all salary and fringe benefits of Mrs. St. Clair. In this regard, there is no credible evidence that a 52-bed facility requires three licensed administrators. Indeed, a 52-bed facility is unique in terms of size, and is roughly one-half the size of a typical nursing facility. Mrs. St. Clair did perform numerous administrative duties during the fiscal year in question, and without contradiction, it was established she devoted some 30 to 50 hours per week at the facility. On the other hand, her son was simply "learning the trade," and his sole function was described as "supervising the maintenance." Under these circumstances, it is found that Shirley St. Clair's salary and fringes are related to "services rendered in connection with patient care" and should be reimbursed. Conversely, the son's salary and fringe benefits were not necessary, were duplicative in nature, and should be disallowed. This finding is substantiated by the fact that the son has not been replaced since leaving the facility. Reimburseable expenses should be accordingly adjusted. Roof Repairs ($11,613.00) During the fiscal year, repairs costing $11,613.00 were made to a part of the roof structure due to leaks. The facility's accountant recorded these repairs as an expense on the cost report. This accounting treatment was made, according to the provider, on the theory the repairs did not extend the useful life of the building, and were necessary for continued operation of the facility. Section 108.2 of HIM-15 in controlling and provides in part as follows: Betterments and improvements extend the life or increase the productivity of an asset as opposed to repairs and maintenance which either restore the asset to, or maintain it at, its normal or expected service life. Repair and maintenance costs are always allowed in the current accounting period. The more credible and persuasive evidence of witness Donaldson supports a finding that the roof expenditure was a "betterment and improvement" that extended the life of the roof (asset). In view of this, it is found that the cost of the repair should have been capitalized, rather than expensed, and that reimburseable costs should be reduced by $11,613 as proposed by the agency. Pension Plan Contribution ($6,000.00) Petitioner reflected $51,000.00 on its cost report for contributions to its employee pension plan during the fiscal year. This included separate payments of $10,000.00, $35,000.00 and $6,000.00 made in April and May, 1983 and January, 1984, respectively. This information is contained on Schedule B of the firm's Form 5500-R filed with the Internal Revenue Service on September 7, 1984. During the course of its audit, HRS requested the pension plan consultant to furnish information concerning minimum funding standards and retirement benefits for the participants. This was required to verify the charges on the cost report. In a letter dated July 3, 1984, the consultant advised in pertinent part: Based on salary and financial information provided by New Riviera, a $45,000.00 contribution to the pension plan met the minimum funding standards and was deductible. Relying upon this information, HRS disallowed $6,000.00 of the $51,000.00 in total costs allocated for the plan during the year ended November 30, 1983. On January 19, 1984, New Riviera issued a check in the amount of $26,000.00 payable to Shearson American Express for a pension plan contribution. Of that total, $6,000.00 was a contribution to 1983 costs. According to New Riviera's accountant, the additional $6,000.00 was required by the plan's actuary. However, this was not confirmed by any documentation or testimony from the actuary. When the audit was being conducted by HRS in the summer of 1984, the check written to Shearson American Express was in its business records, but was not produced for the auditors' inspection. Further, it was not produced at the exit conference held at a later date. In this regard, it was petitioner's responsibility to furnish that information during the course of the audit and exit conference rather than assuming that the auditors would discover the document while reviewing the auditee's books and records. This is particularly true since petitioner was placed on notice that the $6,000.00 was in dispute and subject to being disallowed by the agency.2 Even if the check had been disclosed to the auditors, it does not change the character of the $6,000 payment. The check was issued during the fiscal year ending November 30, 1984 and was therefore outside the scope of the audit year in question. If it is an appropriate expenditure, it is reimburseable on the 1984 cost report rather than the cost report for the year ending November 30, 1983. Therefore, 1983 reimburseable costs should be reduced by $6,000, as proposed by the agency. Write-off of Certain Assets ($3,772.00) During fiscal year 1983 petitioner wrote off $3,722.00 in remaining balances related to certain equipment.3 This amount related to the remaining or salvage value of certain assets whose useful lives had expired according to depreciation guidelines, but which assets were still in service. Even though the assets had not been retired or sold, petitioner wrote off the undepreciated balances remaining on the books. The undepreciated balances arose by virtue of petitioner using the declining balance method of depreciation. Under Medicaid guidelines, assets acquired after 1966 must be depreciated by the straight line method. Therefore, petitioner was in error in using a declining balance method. Even so, according to generally accepted accounting procedures, it was incorrect to write-off a remaining balance related to certain assets before the assets were actually sold or retired. At hearing petitioner agreed that its accounting treatment was contrary to HRS requirements, and accordingly these costs ($3,772.00) should be disallowed.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's cost report for fiscal year ending November 30, 1983 be adjusted in accordance with paragraphs 4 through 7 of the Conclusions of Law portion of this Recommended Order. DONE and ORDERED this 13th day of January, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of January, 1986.
The Issue In an attachment to the joint prehearing stipulation filed on February 18, 1996, the parties describe their resolution of all issues in these consolidated cases with the exception of this issue: Whether the Agency for Health Care Administration, through audit adjustments, properly removed working capital interest from the patient care cost centers and reallocated those costs to the operating cost centers of the individual providers.
Findings Of Fact Petitioners are individual nursing homes participating in the Florida Medicaid program. They are separate providers in the program but are all owned by Florida Convalescent Centers, Inc. (FCC). Respondent, State of Florida Agency for Health Care Administration (AHCA) is the agency responsible for administration and implementation of the Medicaid program in Florida. Title XIX of the Social Security Act (Title XIX) is the matching entitlement program, now known as Medicaid, which provides medical assistance for eligible low-income persons. Within broad federal guidelines, states are given the authority to establish eligibility standards, define the scope of services, establish reimbursement rates and generally administer their own program. One requirement of Title XIX is that a state plan for medical assistance must provide for payment of nursing facility services through rates that "are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities..." (42 USC 1396(a)). Florida's reimbursement methodology has been approved by the Health Care Financing Administration of the U.S. Department of Health and Human Services. Florida's Medicaid reimbursement methodology requires that a provider file an annual cost report which summarizes all costs by cost centers for a given reporting period. The three Medicaid cost centers are: operating costs, patient care costs and property costs, which are defined, respectively, in the Florida Title XIX Long Term Care Reimbursement Plan: Medicaid Nursing Home Operating Costs: [Those costs not directly related to patient care or property costs], such as administrative, plant operation, laundry and housekeeping costs. Return on equity or use allowance costs are not included in operating costs. Medicaid Nursing Home Patient Care Costs: Those costs [directly] attributed to nursing services, dietary costs, and other costs [directly] related to patient care, such as activity costs, social services, and all medically-ordered therapies. Medicaid Nursing Home Property Costs: Those costs related to the ownership or leasing of a nursing home. Such costs may include property taxes, insurance, interest and depreciation, or rent. [Petitioners' exhibit no. 5, page 85, emphasis added] The historical costs reported by the provider are used to compute a separate per-patient day cost for each of the three cost centers. The per diem rates are then added to create a comprehensive per diem rate which is used to prospectively compensate the provider. For example, a provider's costs for 1992, reported in its 1992 cost report, are used to set the 1993 per diem rate. Among the regulatory objectives of the reimbursement plan is cost containment. To further this objective, the plan provides for cost ceilings and targets in each of the cost centers. The ceilings and targets are derived from data collected from all providers in Florida's Medicaid program. The ceiling rates are the maximum amount any provider can be reimbursed, based on its geographical location and size. Provider reimbursement is also limited by facility-specific target rates based on historical data and rates for the individual facility. Year to year increases in the per diems for the three cost centers are permitted to reflect the inflation rate above an established base rate. In compliance with the reporting requirements of the reimbursement plan, FCC's in-house controller, Charles Wysocki, prepared Petitioners' 1992 cost reports. They were then reviewed and signed by a Florida CPA, Joseph Mitchell. In the cost reports, on Schedule C, Mr. Wysocki with the concurrence of Mr. Mitchell, reclassified working capital interest from the property cost center to the patient care and operating cost centers based on the ratio of the total salaries in each to the total salaries for the provider facility. This salary-based allocation method was selected because salaries account for the single largest expenditure in a nursing home, generally 65 - 70 percent, and as high as 86 percent of the total costs for some FCC providers. As part of AHCA's routine review, the agency engaged a nationally- recognized accounting firm, DeLoitte and Touche, to audit the Medicaid cost reports submitted by FCC. The purpose of the review and audits is to assure that only allowable costs are included, that the costs have been properly classified and that the data used to calculate future reimbursement is correct in all material respects. The treatment of working capital interest was one of several issues identified in the audit of FCC's 1992 cost report, but it is the only issue remaining now for resolution. At the time of the audit DeLoitte and Touche was under the impression that the working capital loans were "related party" loans which are treated differently for reimbursement purposes than loans that are "arms-length" between non-related parties. The working capital interest cost was disallowed altogether. After review by the agency an audit report was issued with citations to the authorities supporting the adjustment in the audit. Later in the audit review process the agency conceded that the problem was not "related party" loans and that the working capital interest was a reimbursable cost. However, the agency disputed the allocation of the interest and adjusted Petitioners' cost reports to allocate the interest to the operating cost center. There are three authorities for treatment of Florida Medicaid nursing home costs. The parties concur that the first and primary authority is the Florida Title XIX Long Term Care Reimbursement Plan (Plan). If an issue is not addressed in the Plan, then the next resort is to the Provider Reimbursement manual (HIM-15). Finally, if the issue remains unresolved, providers and the Agency rely on Generally Accepted Accounting Principles (GAAP). The Plan does not specifically address allocation of working capital interest, although it does provide some guidance in the definitions described in paragraph 4, above, and in this language: B. Setting prospective reimbursement per diems and ceilings. The department shall: * * * 4. Determine allowable Medicaid property costs, patient care costs, and return on equity or use allowance. Patient care costs include those costs directly attributable to nursing services, dietary costs, activity costs, social services costs, and all medically- ordered therapies. All other costs, exclusive of property cost and return on equity or use allowance costs, are considered operating costs. . . . (Petitioners' exhibit no. 5, page 45) The guidance found in HIM-15 is much more specific. For example, Section 2806.2 provides: Costs Excluded from Capital-Related Costs. This section sets forth some of the costs that are excluded from capital-related costs. To the extent that these costs are allowable they may be included in determining each provider's operating costs. Exclusions from capital-related costs include: * * * c. interest expense incurred to borrow working capital [for working expenses]; * * * [emphasis added] HIM-15, Section 2338, cited in the agency's audit report, provides: C. Interest expense incurred on funds borrowed for operating expenses must be allocated with administrative and general expenses. . . . Definitions found in Section 2102 of HIM-15 establish that reasonable costs take into account both direct and indirect costs of providers of services and that costs related to patient care include administrative costs. Costs that are neither directly nor indirectly related to patient care are not allowable in computing reimbursable costs. (Petitioners' exhibit number 2, Sections 2102.1, 2102.2 and 2102.3). The loans which generated the interest costs at issue here were obtained by the provider facilities to meet operating shortfalls. When a new facility opens there are almost all the expenses of a fully-staffed nursing home, but until the patient beds are filled, there is insufficient revenue to cover the expenses. FCC's methodology of allocating working capital interest based on salaries resulted in allocating those interest costs to both the patient care cost center and operating cost center, with most going to the patient care cost center. For example, 86 percent of salaries on the cost report for Palm Garden of Ocala for the year ending 12/31/92 were in the patient care cost center, so 86 percent of the working capital interest was allocated to patient care rather than the operating cost center. There is a substantial incentive for providers to shift costs from one center to another to avoid the ceilings. If the provider's reimbursement for operating cost is capped, but its patient care cost is not yet at the ceiling, then shifting costs from operating to patient care increases the total reimbursement to the provider. From the record it is impossible to determine exactly how the loan funds were expended by each provider. The monies were deposited into the general operating accounts of the providers and were used to cover operating shortfalls. In 1989, 1990 and 1991, the three years preceding the year at issue, the agency permitted FCC to allocate working capital interest in the same manner that FCC allocated that cost in its 1992 cost reports. However, the three preceding years' treatment was the outcome of a settlement agreement between the parties wherein each gave up some issues. Except in the context of settlement, the agency has steadfastly maintained its position that working capital interest must be allocated in the operating cost center. Prior cases with other providers have involved adjustments to move the working capital interest costs from the property cost center rather than from the patient care cost center.
Recommendation Based on the foregoing it is hereby: RECOMMENDED: That the Agency for Health Care Administration enter its Final Order adopting the parties' settlement agreement and approving the agency's audit adjustments related to allocation of working capital interest. DONE and RECOMMENDED this 26th day of April, 1996, 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 26th day of April, 1996. APPENDIX TO RECOMMENDED ORDER, CASES NOS. 94-6893 - 94-6906 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. Adopted in paragraph 8. Rejected as unnecessary. 3.-4. Adopted in part in paragraph 11, otherwise rejected as irrelevant or immaterial. 5.-7. Adopted in part in paragraph 9, otherwise rejected as irrelevant or immaterial. 8. Rejected as irrelevant or immaterial. 9.-10. Adopted in substance in paragraph 18. Rejected as unnecessary. Rejected as unnecessary and argument. Rejected as contrary to the weight of evidence. Rejected as contrary to the weight of evidence. Moreover, it is immaterial since HIM-15 and the Plan are applied, not general principles in this case. Adopted in paragraph 13. Adopted in paragraph 4. Adopted in paragraph 5. Adopted in paragraph 6. Adopted in paragraph 7. 20.-23. Adopted in part in paragraph 14, otherwise rejected as immaterial. Rejected as unnecessary. Adopted in part in paragraph 17, otherwise rejected as unnecessary. 26.-31. Rejected as immaterial. 32. Adopted in part in paragraph 16, otherwise rejected as unnecessary. 33.-34. Rejected as unnecessary or immaterial. The interest addressed in paragraphs A and B is distinguished from working capital interest. Rejected as an interpretation not supported by the greater weight of evidence. Rejected as immaterial. Addressed in conclusion of law, paragraph 29. 38.-39. Rejected as argument and contrary to the greater weight of evidence. Rejected as argument or unnecessary. Rejected as argument. 42.-45. Rejected as immaterial. It is unnecessary to apply GAAP here. Rejected as unnecessary. Adopted in paragraph 22. 48.-51. Rejected as argument that is unsupported by the weight of evidence. 52. Adopted in summary in paragraph 20. 53.-54. Rejected as immaterial. Respondent's Proposed Findings of Fact. Adopted in paragraphs 1 and 2. Adopted in paragraph 4. Adopted in paragraph 9. Adopted in paragraph 10. 5.-6. Adopted in substance in paragraph 11. Adopted in paragraph 13. Adopted in substance in paragraphs 14 and 15. Adopted in paragraph 16. Addressed in conclusion of law, paragraph 29. Adopted in paragraph 15. Adopted in part in paragraph 6, otherwise rejected as unnecessary. Adopted in part in paragraph 4. Rejected as unnecessary. 15.-18. Adopted in paragraph 4. Adopted in substance in paragraph 6. Rejected as unnecessary. COPIES FURNISHED: Gerald B. Sternstein, Esquire RUDEN, BARNETT, MCCLOSKY, SMITH SHUSTER & RUSSELL, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Harold M. Knowles, Esquire KNOWLES & RANDOLPH 528 East Park Avenue Tallahassee, Florida 32301 Jerome Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308-5403 Sam Power, Agency Clerk Agency for Health Care Administration Ft. Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
The Issue The issues in this case are whether Respondent applied the proper reimbursement principles to Petitioners' initial Medicaid rate setting, and whether elements of detrimental reliance exist so as to require Respondent to establish a particular initial rate for Petitioners' facilities.
Findings Of Fact There are nine Petitioners in this case. Each of them is a long-term health care facility (nursing home) operated under independent and separate legal entities, but, generally, under the umbrella of a single owner, Tzvi "Steve" Bogomilsky. The issues in this case are essentially the same for all nine Petitioners, but the specific monetary impact on each Petitioner may differ. For purposes of addressing the issues at final hearing, only one of the Petitioners, Madison Pointe Rehabilitation and Health Center (Madison Pointe), was discussed, but the pertinent facts are relevant to each of the other Petitioners as well. Each of the Petitioners has standing in this case. The Amended Petition for Formal Administrative Hearing filed by each Petitioner was timely and satisfied minimum requirements. In September 2008, Bogomilsky caused to be filed with AHCA a Change of Licensed Operator ("CHOP") application for Madison Pointe.1 The purpose of that application was to allow a new entity owned by Bogomilsky to become the authorized licensee of that facility. Part and parcel of the CHOP application was a Form 1332, PFA. The PFA sets forth projected revenues, expenses, costs and charges anticipated for the facility in its first year of operation by the new operator. The PFA also contained projected (or budgeted) balance sheets and a projected Medicaid cost report for the facility. AHCA is the state agency responsible for licensing nursing homes in this state. AHCA also is responsible for managing the federal Medicaid program within this state. Further, AHCA monitors nursing homes within the state for compliance with state and federal regulations, both operating and financial in nature. The AHCA Division of Health Quality Assurance, Bureau of Long-Term Care Services, Long-Term Care Unit ("Long-Term Care Unit") is responsible for reviewing and approving CHOP applications and issuance of an operating license to the new licensee. The AHCA Division of Health Quality Assurance, Bureau of Health Facility Regulation, Financial Analysis Unit ("Financial Analysis Unit") is responsible for reviewing the PFA contained in the CHOP application and determining an applicant's financial ability to operate a facility in accordance with the applicable statutes and rules. Neither the Long-Term Care Unit nor the Financial Analysis Unit is a part of the Florida Medicaid Program. Madison Pointe also chose to submit a Medicaid provider application to the Medicaid program fiscal agent to enroll as a Medicaid provider and to be eligible for Medicaid reimbursement. (Participation by nursing homes in the Medicaid program is voluntary.) The Medicaid provider application was reviewed by the Medicaid Program Analysis Office (MPA) which, pursuant to its normal practices, reviewed the application and set an interim per diem rate for reimbursement. Interim rate-setting is dependent upon legislative direction provided in the General Appropriations Act and also in the Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan is created by the federal Centers for Medicare and Medicaid Services (CMS). CMS (formerly known as the Health Care Financing Administration) is a federal agency within the Department of Health and Human Services. CMS is responsible for administering the Medicare and Medicaid programs, utilizing state agencies for assistance when appropriate. In its PFA filed with the Financial Analysis Unit, Madison Pointe proposed an interim Medicaid rate of $203.50 per patient day (ppd) as part of its budgeted revenues. The projected interim rate was based on Madison Pointe's expected occupancy rate, projected expenses, and allowable costs. The projected rate was higher than the previous owner's actual rate in large part based on Madison Pointe's anticipation of pending legislative action concerning Medicaid reimbursement issues. That is, Madison Pointe projected higher spending and allowable costs based on expected increases proposed in the upcoming legislative session. Legislative Changes to the Medicaid Reimbursement System During the 2007 Florida Legislative Session, the Legislature addressed the status of Medicaid reimbursement for long-term care facilities. During that session, the Legislature enacted the 2007 Appropriations Act, Chapter 2007-72, Laws of Florida. The industry proposed, and the Legislature seemed to accept, that it was necessary to rebase nursing homes in the Medicaid program. Rebasing is a method employed by the Agency periodically to calibrate the target rate system and adjust Medicaid rates (pursuant to the amount of funds allowed by the Legislature) to reflect more realistic allowable expenditures by providers. Rebasing had previously occurred in 1992 and 2002. The rebasing would result in a "step-up" in the Medicaid rate for providers. In response to a stated need for rebasing, the 2007 Legislature earmarked funds to address Medicaid reimbursement. The Legislature passed Senate Bill 2800, which included provisions for modifying the Plan as follows: To establish a target rate class ceiling floor equal to 90 percent of the cost- based class ceiling. To establish an individual provider- specific target floor equal to 75 percent of the cost-based class ceiling. To modify the inflation multiplier to equal 2.0 times inflation for the individual provider-specific target. (The inflation multiplier for the target rate class ceiling shall remain at 1.4 times inflation.) To modify the calculation of the change of ownership target to equal the previous provider's operating and indirect patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous providers' per diem (excluding incentives) and the effect class ceiling and use an inflation multiplier of 2.0 times inflation. The Plan was modified in accordance with this legislation with an effective date of July 1, 2007. Four relevant sentences from the modified Plan are relevant to this proceeding, to wit: For a new provider with no cost history resulting from a change of ownership or operator, where the previous provider participated in the Medicaid program, the interim operating and patient care per diems shall be the lesser of: the class reimbursement ceiling based on Section V of this Plan, the budgeted per diems approved by AHCA based on Section III of this Plan, or the previous providers' operating and patient care cost per diem (excluding incentives), plus 50% of the difference between the previous providers' per diem (excluding incentives) and the class ceiling. The above new provider ceilings, based on the district average per diem or the previous providers' per diem, shall apply to all new providers with a Medicaid certification effective on or after July 1, 1991. The new provider reimbursement limitation above, based on the district average per diem or the previous providers' per diem, which affects providers already in the Medicaid program, shall not apply to these same providers beginning with the rate semester in which the target reimbursement provision in Section V.B.16. of this plan does not apply. This new provider reimbursement limitation shall apply to new providers entering the Medicaid program, even if the new provider enters the program during a rate semester in which Section V.B.16 of this plan does not apply. [The above cited sentences will be referred to herein as Plan Sentence 1, Plan Sentence 2, etc.] Madison Pointe's Projected Medicaid Rate Relying on the proposed legislation, including the proposed rebasing and step-up in rate, Madison Pointe projected an interim Medicaid rate of $203.50 ppd for its initial year of operation. Madison Pointe's new projected rate assumed a rebasing by the Legislature to eliminate existing targets, thereby, allowing more reimbursable costs. Although no legislation had been passed at that time, Madison Pointe's consultants made calculations and projections as to how the rebasing would likely affect Petitioners. Those projections were the basis for the $203.50 ppd interim rate. The projected rate with limitations applied (i.e., if Madison Pointe did not anticipate rebasing or believe the Plan revisions applied) would have been $194.26. The PFA portion of Madison Pointe's CHOP application was submitted to AHCA containing the $203.50 ppd interim rate. The Financial Analysis Unit, as stated, is responsible for, inter alia, reviewing PFAs submitted as part of a CHOP application. In the present case, Ryan Fitch was the person within the Financial Analysis Unit assigned responsibility for reviewing Madison Pointe's PFA. Fitch testified that the purpose of his review was to determine whether the applicant had projected sufficient monetary resources to successfully operate the facility. This would include a contingency fund (equal to one month's anticipated expenses) available to the applicant and reasonable projections of cost and expenses versus anticipated revenues.2 Upon his initial review of the Madison Pointe PFA, Fitch determined that the projected Medicaid interim rate was considerably higher than the previous operator's actual rate. This raised a red flag and prompted Fitch to question the propriety of the proposed rate. In his omissions letter to the applicant, Fitch wrote (as the fourth bullet point of the letter), "The projected Medicaid rate appears to be high relative to the current per diem rate and the rate realized in 2006 cost reports (which includes ancillaries and is net of contractual adjustments). Please explain or revise the projections." In response to the omissions letter, Laura Wilson, a health care accountant working for Madison Pointe, sent Fitch an email on June 27, 2008. The subject line of the email says, "FW: Omissions Letter for 11 CHOW applications."3 Then the email addressed several items from the omissions letter, including a response to the fourth bullet point which says: Item #4 - Effective July 1, 2007, it is anticipated that AHCA will be rebasing Medicaid rates (the money made available through elimination of some of Medicaid's participation in covering Medicare Part A bad debts). Based on discussions with AHCA and the two Associations (FHCA & FAHSA), there is absolute confidence that this rebasing will occur. The rebasing is expected to increase the Medicaid rates at all of the facilities based on the current operator's spending levels. As there is no definitive methodology yet developed, the rebased rates in the projections have been calculated based on the historical methodologies that were used in the 2 most recent rebasings (1992 and 2002). The rates also include the reestablishment of the 50% step-up that is also anticipated to begin again. The rebasing will serve to increase reimbursement and cover costs which were previously limited by ceilings. As noted in Note 6 of the financials, if something occurs which prevents the rebasing, Management will be reducing expenditures to align them with the available reimbursement. It is clear Madison Pointe's projected Medicaid rate was based upon proposed legislative actions which would result in changes to the Plan. It is also clear that should those changes not occur, Madison Pointe was going to be able to address the shortfall by way of reduced expenditures. Each of those facts was relevant to the financial viability of Madison Pointe's proposed operations. Madison Pointe's financial condition was approved by Fitch based upon his review of the PFA and the responses to his questions. Madison Pointe became the new licensed operator of the facility. That is, the Long-Term Care Unit deemed the application to have met all requirements, including financial ability to operate, and issued a license to the applicant. Subsequently, MPA provided to Madison Pointe its interim Medicaid rate. MPA advised Madison Pointe that its rate would be $194.55 ppd, some $8.95 ppd less than Madison Pointe had projected in its PFA (but slightly more than Madison Pointe would have projected with the 50 percent limitation from Plan Sentence 1 in effect, i.e., $194.26). The PFA projected 25,135 annual Medicaid patient days, which multiplied by $8.95, would equate to a reduction in revenues of approximately $225,000 for the first year of operation.4 MPA assigned Madison Pointe's interim Medicaid rate by applying the provisions of the Plan as it existed as of the date Madison Pointe's new operating license was issued, i.e., September 1, 2007. Specifically, MPA limited Madison Pointe's per diem to 50 percent of the difference between the previous provider's per diem and the applicable ceilings, as dictated by the changes to the Plan. (See Plan Sentence 1 set forth above.) Madison Pointe's projected Medicaid rate in the PFA had not taken any such limitations into account because of Madison Pointe's interpretation of the Plan provisions. Specifically, that Plan Sentence 3 applies to Madison Pointe and, therefore, exempts Madison Pointe from the new provider limitation set forth in Plan Sentences 1 and 2. However, Madison Pointe was not "already in the Medicaid program" as of July 1, 2007, as called for in Plan Sentence 3. Rather, Madison Pointe's commencement date in the Medicaid program was September 1, 2007. Plan Sentence 1 is applicable to a "new provider with no cost history resulting from a change of ownership or operator, where the previous operator participated in the Medicaid program." Madison Pointe falls within that definition. Thus, Madison Pointe's interim operating and patient care per diems would be the lesser of: (1) The class reimbursement ceiling based on Section V of the Plan; (2) The budgeted per diems approved by AHCA based on Section III of the Plan; or (3) The previous provider's operating and patient care cost per diem (excluding incentives), plus 50 percent of the difference between the previous provider's per diem and the class ceiling. Based upon the language of Plan Sentence 1, MPA approved an interim operating and patient care per diem of $194.55 for Madison Pointe. Plan Sentence 2 is applicable to Madison Pointe, because it applies to all new providers with a Medicaid certification effective after July 1, 1991. Madison Pointe's certification was effective September 1, 2007. Plan Sentence 3 is the primary point of contention between the parties. AHCA correctly contends that Plan Sentence 3 is not applicable to Petitioner, because it addresses rebasing that occurred on July 1, 2007, i.e., prior to Madison Pointe coming into the Medicaid system. The language of Plan Sentence 3 is clear and unambiguous that it applies to "providers already in the Medicaid program." Plan Sentence 4 is applicable to Madison Pointe, which entered the system during a rate semester, in which no other provider had a new provider limitation because of the rebasing. Again, the language is unambiguous that "[t]his new provider reimbursement limitation shall apply to new providers entering the Medicaid program. . . ." Madison Pointe is a new provider entering the program. Detrimental Reliance and Estoppel Madison Pointe submitted its CHOP application to the Long-Term Care Unit of AHCA for approval. That office has the clear responsibility for reviewing and approving (or denying) CHOP applications for nursing homes. The Long-Term Care Unit requires, as part of the CHOP application, submission of the PFA which sets forth certain financial information used to determine whether the applicant has the financial resources to operate the nursing home for which it is applying. The Long-Term Care Unit has another office within AHCA, the Financial Analysis Unit, to review the PFA. The Financial Analysis Unit is found within the Bureau of Health Facility Regulation. That Bureau is responsible for certificates of need and other issues, but has no authority concerning the issuance, or not, of a nursing home license. Nor does the Financial Analysis Unit have any authority to set an interim Medicaid rate. Rather, the Financial Analysis Unit employs certain individuals who have the skills and training necessary to review financial documents and determine an applicant's financial ability to operate. A nursing home licensee must obtain Medicaid certification if it wishes to participate in the program. Madison Pointe applied for Medicaid certification, filing its application with a Medicaid intermediary which works for CMS. The issuance of a Medicaid certification is separate and distinct from the issuance of a license to operate. When Madison Pointe submitted its PFA for review, it was aware that an office other than the Long-Term Care Unit would be reviewing the PFA. Madison Pointe believed the two offices within AHCA would communicate with one another, however. But even if the offices communicated with one another, there is no evidence that the Financial Analysis Unit has authority to approve or disapprove a CHOP application. That unit's sole purpose is to review the PFA and make a finding regarding financial ability to operate. Likewise, MPA--which determines the interim Medicaid rate for a newly licensed operator--operates independently of the Long-Term Care Unit or the Financial Analysis Unit. While contained within the umbrella of AHCA, each office has separate and distinct duties and responsibilities. There is no competent evidence that an applicant for a nursing home license can rely upon its budgeted interim rate--as proposed by the applicant and approved as reasonable by MPA--as the ultimate interim rate set by the Medicaid Program Analysis Office. At no point in time did Fitch tell Madison Pointe that a rate of $203.50 ppd would be assigned. Rather, he said that the rate seemed high; Madison Pointe responded that it could "eliminate expenditures to align them with the available reimbursement." The interim rate proposed by the applicant is an estimate made upon its own determination of possible facts and anticipated operating experience. The interim rate assigned by MPA is calculated based on the applicant's projections as affected by provisions in the Plan. Furthermore, it is clear that Madison Pointe was on notice that its proposed interim rate seemed excessive. In response to that notice, Madison Pointe did not reduce the projected rate, but agreed that spending would be curtailed if a lower interim rate was assigned. There was, in short, no reliance by Madison Pointe on Fitch's approval of the PFA as a de facto approval of the proposed interim rate. MPA never made a representation to Madison Pointe as to the interim rate it would receive until after the license was approved. There was, therefore, no subsequent representation made to Madison Pointe that was contrary to a previous statement. The Financial Analysis Unit's approval of the PFA was done with a clear and unequivocal concern about the propriety of the rate as stated. The approval was finalized only after a representation by Madison Pointe that it would reduce expenditures if a lower rate was imposed. Thus, Madison Pointe did not change its position based on any representation made by AHCA.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Agency for Health Care Administration, approving the Medicaid interim per diem rates established by AHCA and dismissing each of the Amended Petitions for Formal Administrative Hearing. DONE AND ENTERED this 23rd day of February, 2009, in Tallahassee, Leon County, Florida. R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of February, 2009.
Findings Of Fact Florida Life Care, Inc., d/b/a Beneva Nursing Pavilion (Beneva) and Florida Life Care, Inc., d/b/a Venice Nursing Pavilion North (Venice), the Petitioners in these cases, are both nursing homes that participate in the Florida Medicaid program and the Medicare program. T. 16. In order to receive reimbursement from Florida's Medicaid program, the Petitioners were required to submit to the Department of Health and Rehabilitative Services (HRS) a Medicaid cost report. T. 123. The Medicaid cost report is a report by the provider of its costs and other statistics and is the basis for calculation of the Medicaid reimbursement rate for that facility. Id. The provider is responsible for the correctness of its Medicaid cost report. T. 163. The Medicaid cost report is an accounting estimate. T. 169, 162. The Florida Title XIX Long-Term Care Reimbursement Plan is commonly called the Gainesville Plan, and was adopted on April 1, 1983. P. Ex. 14. The Gainesville Plan is incorporated by reference in rule 10C-7.0482, Florida Administrative Code, and establishes the manner in which Medicaid cost reports must be submitted and evaluated. P. Ex. 15. Beneva filed its first Medicaid cost report for the period covering September 7, 1982, through September 30, 1983. T. 24-25. Venice also filed its Medicaid cost report for the year ending September 30, 1983. T. 24. Both reports were filed by the Petitioners' accountants, Touche Ross & Co., on March 14, 1984, and were timely filed. P. Exs. 1 and 2; T. 24. Each of the Medicaid cost reports contained an adjustment for estimated Medicare costs. The adjustment appears in the Medicare Adjustment Schedule (MAS) of the Medicaid cost report. In so doing, the Petitioners were electing to use old cost reporting forms which allowed use of data from the Medicare cost report. Had they elected to use the new forms, there technically would have been no Medicare adjustment because the cost report calculates a Medicaid rate in a way that makes it unnecessary to delete Medicare costs. T. 143-144. The Medicare adjustment in the Medicaid cost report is designed to comply with the Gainesville Plan. T. 123. It is intended to prevent double reimbursement for the same costs. T. 124. The Medicare adjustment was taken directly from the Medicare cost report which each Petitioner had earlier submitted to Medicare. T. 25-26. The Medicare cost report is an accounting estimate, T. 169, and is the best and most reasonable estimate of costs associated with Medicare at the time that it is filed, but is subject to change after desk review, audit, or appeal. T. 12. There is no requirement imposed by HRS that changes occurring in the Medicare cost report be reported to HRS with respect to the Medicaid cost report. Venice reported a Medicare adjustment in its Medicaid cost report of $1,242,501. Beneva reported a Medicare adjustment in its Medicaid cost report of $1,798,107. T. 26. HRS audited the Medicaid cost reports of the Petitioners. HRS transmitted the audit of Venice by letter dated August 16, 1985, and transmitted the audit of Beneva by letter dated August 27, 1985. T. 29; P. Exs. 5 and 6. As a result of the audits, Venice had to reimburse HRS $43,637.57, and Beneva had to reimburse HRS $101,849.55. T. 36-37. Both letters of transmittal described in the last paragraph stated that the provider had 30 days in which to request a formal administrative hearing to contest any audit adjustment in dispute or disagreement. T. 29. Neither Petitioner requested a formal administrative hearing at that time because neither objected to the audit reports. T. 31. On August 25, 1985, the Medicare cost reports of both Beneva and Venice were substantially reduced (by hundreds of thousands of dollars) as a result of a federal audit. T. 32-35, 154. Petitioners did not know that these costs would be reduced in these amounts until the federal audit was completed. T. 35. The Medicare cost reductions are the subject of a pending appeal. T. The Medicare cost reductions may change again depending upon the result of the appeal. Id. Petitioners contend that if the numbers change again on appeal, they will have to again change their Medicaid cost report for the year ending September 30, 1983. T. 74. Accounting issues which arise with respect to the Medicaid cost report are resolved by reference first to the Gainesville Plan, then to the Medicare Health Insurance Manual (HIM) 15, and then to generally accepted accounting principles. T. 78. Section IV.E. of the Gainesville Plan provides: The prospectively determined individual nursing home's rate will be adjusted retroactively to the effective date of the affected rate . . . under the following circumstances: An error was made by HRS in the calculation of the provider's rate. A provider submits an amended cost report used to determine the rate in effect. An amended cost report may be submitted in the event of a change of one percent in the reimbursement rate. The amended cost report must be filed by the filing date of the subsequent cost report. Further desk or on-site audits of cost reports used in the establishment of the prospective rate disclose a change in allowable costs in those reports. HRS interprets subparagraph 1 above to be available to correct either mathematical errors or misstatements of fact that existed at that time. T. 129. It is the policy of HRS to use the best data available with respect to the Medicaid cost report, and thus it is the policy of HRS to use the Medicare cost report as a basis for estimating Medicare costs for the Medicaid cost report when it is the best information available. T. 138, 125. This policy is reasonable. HRS relied upon the Medicaid cost report as submitted by the Petitioners' accountants in establishing the Medicaid rates for the Petitioners. As discussed above, the Medicaid cost report contained estimates of Medicare costs which were the best estimates then available. These estimates were not in error at that time (that is, these estimates were not erroneous statements of fact) even though later changed by audit. T. 133. HRS did not commit any mathematical errors in the use of Petitioners' Medicare cost estimates. HRS did not commit any error in relying upon the data submitted to it by the Petitioners. T. 128. Petitioners did not, pursuant to subparagraph 2 of the Gainesville Plan set forth above, file an amended cost report by the filing date of the subsequent Medicaid cost report. In fact, they could not have availed themselves of this provision since the deadline for filing such an amended cost report was December 31, 1984, and the Medicare cost report audit adjustment did not occur until eight months later. T. 153-154. When the Gainesville Plan was implemented, HRS no longer used or relied upon Medicare desk or on-site audits. HRS interprets subparagraph 3 of the Gainesville Plan, set forth above, to apply only to changes in allowable costs disclosed in Medicaid desk or on-site audits. T. 131. Audited information is better information than an initial report which is not audited, and is preferable to unaudited information. T. 140. It, therefore, is the policy of HRS to use audited information if it is available. This policy is reasonable. It is a generally accepted accounting principle that a change in an accounting estimate is defined as the result of new information, changing conditions, more experience, or additional information that requires revision of previous estimates. T. 133; HRS Ex. 20. It is a generally accepted accounting principle that a change in an accounting estimate should not be accounted for by restating the prior year final statements, but should be accounted for in the period in which the change occurs. T. 132. See also P. Ex. 20, p. 125. Petitioners' accounting firm, Touche Ross & Co., prepared the original Medicaid cost report, but have not returned to that report as a result of the change in Medicare cost to file a restatement of the Medicaid cost report. T. 78. Pursuant to the principles and policies described above in findings of fact 21 through 23, it is the policy of HRS to recognize material changes to the Medicare adjustment which results from an audit of the Medicare cost report; HRS recognizes such changes by recognizing a change in the Medicaid cost report, but only in the current period. T. 126, 139, 142. If the change in Medicare costs for Beneva and Venice from the year ending September 30, 1983, are accounted for in the current period (1986), the effect on current allowable reimbursement rates will be negligible because most of the effect would be to cause the reimbursement rates to exceed the reimbursement ceilings established by HRS. T. 70-71. If a provider's reimbursement rate is already at the ceiling, there is no benefit from an adjustment that would otherwise have increased the rate. T. 144. Petitioners are already at that ceiling. T. 146. If the change in Medicare costs were accounted for by revision of the 1983 costs reports, Beneva and Venice would be entitled to substantial amounts of reimbursement. T. 94-95. The parties have stipulated that the exact amounts of reimbursement are not at issue in this formal administrative proceeding, but would be determined informally should the Petitioners prevail on the legal issues presented. T. 92-93. The Petitioners applied to HRS for a retroactive revision of its 1983 Medicaid cost reports. P. Ex. 16 and 17. By letter dated February 28, 1986, HRS denied the request for retroactive revision of the 1983 Medicaid cost reports. P. Ex. 18. The letter of denial did not inform the Petitioners of their right to request a formal administrative hearing regarding the denial, and did not specify the time in which such a request could be made. Id. Within 30 days of the date of the letter denying the request for retroactive revision of the 1983 Medicaid cost reports, the Petitioners in writing requested formal administrative hearings concerning the denials as to that issue. P. Ex. 19. HRS has never allowed a retroactive amendment of a closed cost report in the circumstances presented in this case. T. 127, 191-92. Were it to do so, it would turn the Medicaid reimbursement plan into a retroactive reimbursement plan because cost reports would continue to be changed retrospectively as changes in the underlying data occur. T. 127, 171. A second issue in this case is whether HRS has correctly applied the low occupancy provision of the Gainesville Plan to Beneva. On October 30, 1985, some eight days after being notified by HRS that HRS intended to make a low occupancy adjustment to Beneva, Beneva wrote to HRS asserting that it had incorrectly applied a low occupancy adjustment to Beneva. T. 46; P. Ex. 14. Prior to this time, HRS had not informed Beneva of a right to request a formal administrative hearing as to this issue, or the time limits for making such a request. There then ensued several conferences between HRS and the Petitioners concerning the low occupancy adjustment and the Medicare adjustment. T. 54, 90- On February 7 and 21, 1986, Petitioners wrote to HRS concerning the dispute over the Medicare adjustment. P. Exs. 16 and 17. No mention is made in these letters of the low occupancy issue. As discussed in finding of fact 27, by letter dated February 28, 1986, HRS denied the Petitioners' requests with respect to the Medicare adjustment. The denial does not mention the low occupancy adjustment, and only refers to the letters of February 7 and 28, 1986. P. Ex. 18. On March 26, 1986, the Petitioners requested a formal administrative hearing only with respect to the Medicare issue. P. Ex. 19. However, on June 5, 1986, Beneva filed a petition for formal administrative hearing (actually a first amended petition), and paragraph 7 of that petition raises the issue of the low occupancy adjustment. Prior to June 5, 1986, HRS had not informed Beneva of its right to request a formal administrative hearing as to this issue or the time limits for making such a request. Section V.B.7.e. of the Gainesville Plan calculates an adjusted per diem by multiplying each of the per diem components by a fraction that has as its numerator the individual facility occupancy level." P. Ex. 15, p. 33. Thus, the lower the individual facility occupancy level, the smaller the fraction, resulting in lower per diem allowance. Section V.B.7.f.2. of the Gainesville Plan provides that the occupancy adjustment in subparagraph e above "will not apply to . . . facilities with 18 or fewer months of operating experience." P. Ex. 15, p. 33. Beneva commenced operation as a nursing home on September 7, 1982. T. 25. On the day that it opened, the occupancy of Beneva was very low. It increased during the first year, and had an average occupancy of about 57 percent in the first 13 months. T. 43. The average annual occupancy of Beneva in 1984 was 83 percent. In 1985 it was 95 percent. T. 47; P. Ex. 14. HRS could have obtained these statistics from Beneva if it had wanted to. T. 201. HRS applied the low occupancy adjustment to the per diem rates at Beneva for the months beginning April 1, 1984, to June 30, 1985. T. 43, 50, 63. April 1984, was the nineteenth month from the commencement of operations at Beneva. T. 194. HRS used the occupancy rate for the first 13 months of operation (57 percent) in this low occupancy adjustment. T. 43. The reason for using the occupancy rate for the first 13 months is that HRS uses the occupancy rate for the last cost report (in this case, the first cost report for the period ending September 30, 1983) to set rates for the prospective period. T. 200. HRS reasons that the same cost report used to set the prospective rates should be used for all purposes, including ascertainment of the "individual facility occupancy level," the numerator in the occupancy adjustment fraction in section V.B.7.e. of the Gainesville Plan. T. 202. It further reasons that this is required in order that the Medicaid reimbursement program be a prospective plan (based upon a fixed historical operation period, including all statistics associated with that cast) rather than upon current data. T. 212, 222-224. A new facility is expected to have low occupancy during its initial months of operation. T. 195. However, since some patient care costs are relatively fixed, a lower occupancy results in a higher per diem because the per diem cost is simply costs divided by patient days. T. 195-96. In this sense, start-up per diem cost rates are temporarily high due to the temporarily low occupancy. Id. The low occupancy adjustment has the effect of containing health care costs by adjusting this temporarily and unusually high per diem downward. T. 196-197, 192. It serves to partially preclude the receipt of an unwarranted high per diem cost reimbursement in a period when occupancy is relatively high. Id. HRS's interpretation of the method for applying the occupancy adjustment in the Gainesville Plan is an unwritten HRS policy. T. 202-203. HRS has applied this interpretation in the same manner to other Medicaid providers. T. 195, 214. As a result of application of the low occupancy adjustment, Beneva had its per diem reimbursement reduced by $15 to $18. T. 45, 233. If HRS had used the occupancy rate for 1984 (83 percent), there would have been very little impact upon Beneva's per diem rates. T. 207.
Recommendation For these reasons, it is recommended that the Department of Health and Rehabilitative Services enter its final order or orders denying retrospective adjustment to the fiscal year 1983 Medicaid cost reports of the Petitioners, and denying the requested alteration to the occupancy adjustment as applied to the Petitioner, Florida Living Care, Inc., d/b/a Beneva Nursing Pavilion. DONE and RECOMMENDED this 1st of June 1987, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of June 1987. Appendix to Recommended Order in DOAH Case Numbers 86-2418 and 86-2419 The following is an explanation of the reasons for rejection of findings of fact proposed by the parties. The numbers correspond to the numbers used by the parties. Proposed findings of fact not discussed in this appendix have been adopted as findings of fact in this Recommended Order. Findings of fact proposed by the Petitioners: 13. In the last sentence, the verb "would" is rejected as a matter of law in this Recommended Order. The sentence has, however, been adopted as the contention of the Petitioners. 15. This proposed finding has been adopted with the addition of the finding that the recalculation is to be done only in the current period. 27. While the occupancy rates for 1983, 1984, and 1985 are provided by the evidence, there does not appear to be any evidence as to the occupancy rate on April 1, 1984. 31, 33, 37, 38, 40, 42, 44, 45, and 47. These proposed findings of fact are subordinate to findings of fact adopted in the Recommended Order, and are not necessary. The only portion of this proposed finding that is marginally relevant is the matter of efficiency of operation. Moreover, HRS had adequately explained its policy for interpretation of the low occupancy adjustment, and did not have to have specific evidence as to the efficiency of Beneva. If Beneva thought that that evidence would be useful, it could have presented it. The remainder of the proposed finding concerns whether HRS had evidence that Beneva was receiving a reimbursement rate higher than similar providers, or was receiving reimbursement in excess of its allowable cost on April 1, 1984. Again, HRS adequately explained its incipient policy in general terms, and did not need to present specific evidence concerning Beneva. But more important, the issue is whether the per diem costs of Beneva as reported to HRS for the year ending September 30, 1983, were normal, or unusually high as assumed by HRS in its interpretation of the Gainesville Plan. The reimbursement rate of Beneva is not relevant. There is no testimony at the record cited that Beneva was operating efficiently. The witness did not respond to the question and give any evidence concerning efficiency of operation. With respect to the remainder of the proposed finding of fact, whether or not Beneva was operating at a reimbursement rate under the caps on April 1, 1984, sheds little light on whether Beneva's Medicaid costs for the period ending September 30, 1983, as reported in the Medicaid cost report at issue in this case were normal, or unusually high as assumed by HRS in its interpretation of the Gainesville Plan. See the discussion with respect to proposed finding of fact 35. 46. Rejected for the reasons discussed in finding of fact 18. Moreover, it would have been error for HRS to have allowed the revisions requested by Mr. Fox because it would have been incorrect to revise previous accounting estimates. A change in an accounting estimate is to be made in the current period. Finding of fact 22. 50. This proposed finding of fact is not relevant because double reimbursement is not an issue raised by any party. Findings of fact proposed by the Respondent: 4. Whether the August 1985, audit reports gave the Petitioners a "point of entry" is a question of law. It is true that these were points of entry, but not with respect to the issues raised in these cases. Thus, the proposed finding is irrelevant as well. 12. The record does not support the proposed finding that FLC "did not wish to incorporate the change in the Medicare adjustment in its later cost reports." There is no evidence of what FLC wished to do. A finding has been made that it would not have benefited FLC to have sought such a revision. 19. This proposed finding is a conclusion of law. COPIES FURNISHED: Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Theodore E. Mack, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd. Building One, Room 407 Tallahassee, Florida 32399-0700 Michael J. Bittman, Esquire R. Bruce McKibben, Esquire Jonathan S. Grout, Esquire DEMPSEY & GOLDSMITH P. O. Box 10651 Tallahassee, Florida 32302
Findings Of Fact 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. All three facilities are operated by Developmental Services, Inc. All are certified ICF/MR's participating in the Florida Medicaid Program. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for overseeing the ICF/MR Medicaid Program. 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. 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. 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. 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. 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. 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. 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. 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. 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.) 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. 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. 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. 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) 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. 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. 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. 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.
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. Adopted in Paragraph 7. 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. Adopted in part in Paragraph 9, but the retroactive application of the methodology is rejected as inconsistent with the evidence. Adopted in Paragraph 11. Adopted in part in Paragraph 10, the statement of entitlement to two-way settlement is rejected as inconsistent with the evidence. Adopted in Paragraph 15. Rejected as argument. Adopted in part in Paragraph 16, otherwise rejected as argument. Rejected as inconsistent with the evidence. Rejected as contrary to the evidence. HAS' method of cost settlement was not inappropriate. Adopted in substances in Paragraph 19. Rejected as unnecessary 29 and 30. Rejected as argument and unnecessary. Respondent's Proposed Findings of Fact Adopted in Paragraph 1. Adopted in Paragraphs 2 and 3 Adopted in Paragraph 8. 4 and 5. Adopted in Paragraphs 4 and 5. Adopted in Paragraph 6. Adopted in Paragraph 10. Adopted in Paragraphs 10 and 11. 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
The Issue The issues are whether proposed and existing Florida Administrative Code rules, both numbered 59G-6.030, are valid exercises of delegated legislative authority.
Findings Of Fact The Petitioners are 120 hospitals--some not-for-profit, some for-profit, and some governmental--that are licensed under chapter 395, Florida Statutes, provide both inpatient and outpatient services, and participate in the Medicaid program. AHCA is the state agency authorized to make payments for services rendered to Medicaid patients. Before 2013, all Medicaid outpatient services were provided and paid fee-for-service. Under the fee-for-service model, hospitals submit claims to AHCA, and AHCA reimburses the hospitals based on the established rate. For many years, AHCA has set prospective Medicaid fee- for-service reimbursement rates for outpatient hospital services, either semi-annually or annually, based on the most recent complete and accurate cost reports submitted by each hospital; has re-published the Florida Title XIX Hospital Outpatient Reimbursement Plan (Outpatient Plan) that explained how the rates were determined; and has adopted the current Outpatient Plan by reference in rule 59G-6.030. In 2005, the Florida Legislature’s General Appropriations Act (GAA) stated that the funds appropriated for Medicaid outpatient hospital services reflected a cost savings of $16,796,807 “as a result of modifying the reimbursement methodology for outpatient hospital rates.” It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan that may include, but is not limited to, the inflation factor, variable cost target, county rate ceiling or county ceiling target rate to achieve the cost savings.” AHCA responded by amending the Outpatient Plan to provide: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The amended Outpatient Plan was then adopted by reference in rule 59G-6.030, effective July 1, 2005. AHCA collaborated with the hospitals to determine how to accomplish the legislatively mandated reduction in a manner that would be fair to all the hospitals. It was decided to take the hospitals’ unaudited cost reports from the most recent complete fiscal year and the number of Medicaid occasions of service from the monthly report of AHCA’s Medicaid fiscal agent that corresponded to the hospitals’ fiscal years, and use an Excel spreadsheet program with a function called Goal Seek to calculate proportionate rate adjustments for each hospital to achieve the legislatively mandated aggregate savings. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2005. In 2006, there was no further Medicaid Trend Adjustment (MTA) reduction. However, in accordance with the instructions in the 2005 GAA, the 2005 MTA reduction of $16,796,807 was treated as a recurring reduction and was applied again in the 2006 Outpatient Plan, which again stated: “Effective July 1, 2005, a recurring rate reduction shall be established until an aggregate total estimated savings of $16,796,807 is achieved each year. This reduction is the Medicaid Trend Adjustment.” The 2006 Outpatient Plan also stated: “This recurring reduction, called the Medicaid Trend Adjustment, shall be applied proportionally to all rates on an annual basis.” It also came to be known as the first cut or cut 1. It again was applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The cut 1 rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2006. In 2007, the GAA stated that the funds appropriated for Medicaid outpatient hospital services were reduced by $17,211,796 “as a result of modifying the reimbursement for outpatient hospital rates, effective July 1, 2008.” This has been referred to as the second cut or cut 2. It instructed AHCA to “implement a recurring methodology in the Title XIX Outpatient Hospital Reimbursement Plan to achieve this reduction.” The 2008 Outpatient Plan again applied the first cut as a recurring reduction and stated that it was to be “applied proportionally to all rates on an annual basis.” It then made the second cut, which was to be “applied to achieve a recurring annual reduction of $17,211,796.” These cuts were again applied by taking the hospitals’ most current unaudited cost reports and the corresponding occasions of service from the appropriate monthly report of the fiscal agent, and using the Excel spreadsheets and the Goal Seek function to calculate rate adjustments for each hospital. The resulting rate adjustments were incorporated in the hospital reimbursement rates, effective July 1, 2008. This process was repeated in subsequent years. The third cut (cut 3) was in 2008; it was a $36,403,451 reduction. The fourth cut (cut 4) was in 2009, during a special session; it was a $19,384,437 reduction; however, per the GAA that made the fourth cut, it was not applied to the rates of certain children’s specialty hospitals, which were excluded from the reduction. In addition, using language similar to what AHCA had been using in the Outpatient Plans, the 2009 GAA stated: “The agency shall reduce individual hospital rates proportionately until the required savings are achieved.” The Legislature enacted cut 5 and cut 6 in 2009 and 2010. However, the GAAs stated that AHCA should not take these cuts if the unit costs before the cuts were equal to or less than the unit costs used in establishing the budget. AHCA determined that cuts 5 and 6 should not be taken. However, cuts 1 through 4 continued to be applied as recurring reductions, and rates were adjusted for cuts 1 through 4 in 2009 and 2010 in the same manner as before. In 2011, the GAA enacted cut 7; it was for $99,045,233 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In setting the individual hospitals’ reimbursement rates, AHCA first applied cut 7 in the same manner as cuts 1 through 4. The result was a 16.5 percent rate adjustment for cut 7, which was much higher than for previous cuts. Some of the hospitals pointed this out to AHCA and to the Legislature and its staff. There was lots of discussion, and it was determined that the rate adjustment from cut 7 would be more like what the Legislature was expecting (about 12 percent), if budgeted occasions of service were used, instead of the number from the fiscal agent’s monthly report that corresponded to the most recent cost reports. AHCA agreed to change to budgeted fee-for- service occasions of service for cut 7, with the concurrence of the hospitals and the Legislature and its staff. The year 2011 was also the year the Legislature instituted what became known as the “unit cost cap.” In that year, the Legislature amended section 409.908, Florida Statutes, to provide: “The agency shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs effective July 1, 2011. Reimbursement rates shall be as provided in the General Appropriations Act.” § 409.908(23)(a), Fla. Stat. (2011). This part of the statute has not changed. The GAA that year elaborated: In establishing rates through the normal process, prior to including this reduction [cut 7], if the unit cost is equal to or less than the unit cost used in establishing the budget, then no additional reduction in rates is necessary. In establishing rates through the normal process, if the unit cost is greater than the unit cost used in establishing the budget, then rates shall be reduced by an amount required to achieve this reduction, but shall not be reduced below the unit cost used in establishing the budget. “Unit cost” was not defined by statute or GAA. To calculate what it was in 2011, AHCA divided the total dollar amount of Medicaid payments made to hospitals by AHCA by the number of Medicaid occasions of service for all hospitals. The result was $141.51. Since 2011, AHCA has applied the unit cost cap with reference to the 2011 unit cost of $141.51. Since then, AHCA has compared the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, except in children’s and rural hospitals, to determine whether the unit cost cap would require a further rate reduction, after applying the MTA cuts. Using this comparison, the unit cost cap never has been exceeded, and no further rate adjustments ever have been required. It is not clear why AHCA excluded Medicaid occasions of service for children’s and rural hospitals from the unit cost calculations made after 2011. It could have been because those hospitals were excluded from cut 7 and cut 8. Cut 8 was enacted in 2012; it was for $49,078,485 and was added to the previous cuts for all but certain children’s specialty and rural hospitals, which were excluded from the additional reduction. In 2012, the Legislature specified in the GAA that budgeted occasions of service should be used in calculating the MTA reduction for inpatient hospitals. AHCA always treated inpatient and outpatient MTAs the same, and it viewed the specific legislative direction for the inpatient MTA as guidance and indicative of legislative intent that it should continue to use budgeted occasions of service for the outpatient cut 7 and should also use them for the outpatient cut 8. Again, the hospitals did not object since the result was a higher reimbursement rate. In 2014, the Florida Medicaid program began to transition Medicaid recipients from a fee-for-service model to a managed care model. Under the managed care model, AHCA pays a managed care organization (MCO) a capitation rate per patient. The MCOs negotiate contracts with hospitals to provide outpatient care at an agreed reimbursement rate per occasion of service. Since August 2014, the majority of Medicaid recipients has been receiving services through MCOs, rather than through fee-for-service. Currently, about 75 to 80 percent of Medicaid outpatient hospital occasions of service are provided through managed care In recognition of the shift to MCOs, the Legislature began to divide the Medicaid outpatient hospital reimbursement appropriation in the GAA between what AHCA reimburses directly to hospitals under the fee-for-service model and what it pays MCOs to provide those services under the MCO delivery system. This allocation of the budgets between fee-for-service and managed care necessarily accomplished a corresponding division of the recurring MTA reductions between the two delivery systems. The Legislature did not enact any statutes or GAAs requiring AHCA to change how it applies MTA reductions to determine fee-for-service outpatient reimbursement rate adjustments, or make any other changes in response to the transition to MCOs. There were no additional MTA reductions in 2015. The 2015 Outpatient Plan, which is incorporated in existing rule 59G- 6.030, applied the previous cuts as recurring reductions. The evidence was confusing as to whether cuts 7 and 8 were applied using the occasions of service in the fiscal agent’s monthly report corresponding to the hospitals’ most current unaudited cost reports, or using budgeted occasions of service. If the former, the numbers did not yet reflect much of the shift to the managed care model because of a time lag in producing cost reports, and the evidence suggested that the numbers were approximately the same as the budgeted occasions of service used previously. Whichever numbers were used, the resulting rate adjustments were incorporated in the hospitals’ reimbursement rates, effective July 1, 2015. Leading up to the 2016 legislative session, there was a legislative proposal to determine prospective Medicaid outpatient reimbursement rates using a completely new method called Enhanced Ambulatory Patient Groups (EAPGs). EAPGs would eliminate the need to depend on hospital cost reports and complicated calculations to determine the effects of MTA reductions on prospective hospital outpatient reimbursement rates, effective July 1, following the end of the legislative session each year. Hospitals, including some if not all of the Petitioners, asked the Legislature not to proceed with the proposed EAPG legislation until they had an opportunity to study it and provide input, and EAPGs were not enacted in 2016. However, section 409.905(6)(b) was amended, effective July 1, 2017, to require the switch to EAPGs. See note to § 409.905, Fla. Stat.; and ch. 2016-65, § 9, Laws of Fla. (2016). When it became apparent that EAPGs would not be in use for prospective reimbursement rates for fiscal year 2016/2017, AHCA basically repeated the 2015/2016 process, but adjusted the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8 by adding 14,000 occasions of service. At the end of July, AHCA published new rates effective July 1, 2016. When the new rates were published, they were challenged by some of the Petitioners under section 120.57(1), Florida Statutes. Citing section 409.908(1)(f)1., AHCA took the position that there was no jurisdiction and dismissed the petitions. That decision is on appeal to the First District Court of Appeal. The Petitioners also challenged the methodology used to calculate the new prospective reimbursement rates as a rule that was not adopted as required, and challenged the validity of existing rule 59G-6.030, which incorporated the 2015 Outpatient Plan by reference. These challenges became DOAH cases 16-6398RX through 16-6414RX. In response to DOAH cases 16-6398RX through 16-6414RX, AHCA adopted the 2016 Outpatient Plan by reference in proposed rule 59G-6.030. The 2016 Outpatient Plan provides more detail than the 2015 version. AHCA’s position is that the additional detail was provided to clarify the 2015 version. However, it changed the occasions of service used for calculating the hospitals’ rate reductions for cuts 7 and 8, as indicated in Finding 22, as well as some other substantive changes. The 2015 Outpatient Plan addressed the unit cost cap by stating: “Effective July 1, 2011, AHCA shall establish rates at a level that ensures no increase in statewide expenditures resulting from a change in unit costs.” The 2016 Outpatient Plan elaborates and specifies the calculation AHCA has been using, as stated in Finding 14. The 2015 Outpatient Plan provided that an individual hospital’s prospective reimbursement rate may be adjusted under certain circumstances, such as when AHCA makes an error in the calculation of the hospital’s unaudited rate. It also stated: “Any rate adjustment or denial of a rate adjustment by AHCA may be appealed by the provider in accordance with Rule 28-106, F.A.C., and section 120.57(1), F.S.” The 2016 Outpatient Plan deleted the appeal rights language from the existing rule. The effect of the existing and proposed rules on the Petitioners through their effect on managed care contract rates is debatable. Those rates do not have to be the same as the fee- for-service outpatient reimbursement rates, although they are influenced by the fee-for-service rates, and it is not uncommon for them to be stated as a percentage of the fee-for-service rates. By law, managed care contract rates cannot exceed 120 percent of the fee-for-service rates unless the MCO gets permission from AHCA, as provided in section 409.975(6). Currently, rates paid by MCOs for Medicaid hospital outpatient services average about 105 percent of the fee-for-service reimbursement rates. AHCA has indicated that it would not expect or like to see the contract rates much higher than that. It is not clear whether that still is AHCA’s position. If higher rates were negotiated, the impact of fee-for-services rate adjustments on managed care rates could be reduced or even eliminated. The effect of the existing and proposed rules on the Petitioners through their effect on how fee-for-service reimbursement rates are calculated is not disputed. With the transition to managed care, the effect is greater and clearly substantial. The recurring MTA reductions enacted by the Legislature through 2014, which total $224,015,229 (after taking into account $10,656,238 that was reinstated, and $4,068,064 that was added in consideration of trauma centers), are being spread over fewer fee-for-service occasions of service, especially for cuts 7 and 8, which significantly lowers the fee-for-service outpatient reimbursement rates calculated under the proposed rule. The Petitioners’ objections to the validity of the proposed and existing rules can be summarized as follows: a lack of legislative authority for recurring (i.e., cumulative) MTA reductions; a failure to adopt a fixed methodology to calculate individual hospital outpatient reimbursement rate adjustments resulting from MTA reductions; specifically, a failure to derive the number of fee-for-service occasions of service used in calculating individual hospital outpatient reimbursement rate adjustments in the same manner every year; conversely, a failure to increase the occasions of service used to calculate individual hospital outpatient reimbursement rate adjustments resulting from cuts 1 through 4; a failure of the unit cost cap in the existing rule to specify how it is applied; a failure of the unit cost cap in the proposed rule to compare the 2011 unit cost to the current cost, calculated by dividing the total dollar amount of Medicaid payments made to all hospitals by AHCA by the number of Medicaid occasions of service for all hospitals, including in children’s and rural hospitals; and proposed rule’s deletion of the language in the existing rule stating that a rate adjustment or denial can be appealed in accordance with Florida Administrative Code Rule 28-106 and section 120.57.
Findings Of Fact In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original state legislative basis and authority for Florida's entry into the Medicaid program. Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to: Enter into such agreement with other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act] Section 409.266(3), Florida Statutes, as enacted, stated that: The Department is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Security Amendments of 1965." No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program. The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970. At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS"), has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a(a)(5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida. Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended. HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing federal regulations and requirements. As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.) C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan. Florida's initial State Plan was approved by HEW effective January 1, 1970. At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services. At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a), and (b), 34 Fed. Reg. 1244 (January 25, 1969). At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x(v)(1)(A); 20 C.F.R. Sections 405.451(c)(2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)]. Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusions of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Sections 405.402(b)(2), 405.451(b)(2). Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42 C.F.R. Section 405.401, et seq. Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. Attached as an appendix to the recommended order is the form agreement drafted with the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981. From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto. The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The form agreement requires HRS to compute a percentage allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients. The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends. The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical. In drafting the form agreement HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner: Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period. Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period. To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which might have been due the hospital applicable to the reporting period. The adjusted inpa- tient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required. If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment. If, however, HRS determines that the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only. HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services: a. January 1, 1970 - June 30, 1972 . . . 12 percent July 1, 1972 - approximately March 30, 1976 . . . . . . . . . . 9 percent Approximately March 31, 1976 - June 30, 1981 . . . . . . . . . . . 6 percent Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis. Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends. HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances." At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services. Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards. In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975. In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976. A decision memorandum presented options to the HRS Secretary for reducing the projected deficit. Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent. The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends. HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976. In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction. During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance." In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements. Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards. In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of Federal Regulation 45 C.F.R. Section 250.30(a). A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan"). "Alternative plans" have been permitted under applicable federal regulations since October 21, 1974. A state participating in the Medicaid program may elect to establish an "alternative plan, but may not implement such "alternative plan" without the prior written approval of HEW. Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981. By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid. HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval. In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal. In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS. In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978. HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980. In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone: For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement. Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will continue to work with HRS staff to secure Florida compliance re- garding this requirement. Petitioner's Exhibit P-46. Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions was approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law. Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152. In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152), and such "alternative plan" was implemented effective July 1, 1981. Until July 1, 1981, HRS continued to use the 6 percent "percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981. From November 20, 1976, until July 1, 1981--the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital se vices were increasing at an average annual rate in excess of the 6 percent "percentage allowance." From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its a proved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals-- including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. PAN AMERICAN HOSPITAL CORPORATION Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida. Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126. At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974. The appendix to this recommended order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients. At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program. During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accordance with Medicare cost reimbursement principles and standards. With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients. During each of the fiscal periods in dispute in this action, to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards. With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc., reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted. On May 3, 1976, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1975, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period in respect to those services. During its fiscal year ended March 31, 1975, petitioner received $86,469 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On February 14, 1979, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1976, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1976, petitioner received $199,328 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On September 29, 1978, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1977, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1977, petitioner received $6,083 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On March 13, 1980, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1978, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1978, petitioner received $178,506 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On June 30, 1981, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1979, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1979, petitioner received $302,347 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On or about June 30, 1981, the audit of petitioner's Medicaid cost report for the period ending March 31, 1980, was concluded. A formal Notice of Program Reimbursement had not been issued at the time of the hearing. MOTION TO DISMISS DENIED Respondent contends that these proceedings should be summarily concluded "for failure to join an indispensable party," viz., the Federal Government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability . . . [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This contention must fail for several reasons. Neither the Division of Administrative Hearings nor the Department of Health and Rehabilitative Services has the power or means to bring an unwilling party into a proceeding instituted pursuant to Section 120.57, Florida Statutes (1979). At most, "the presiding officer may, upon motion of a party, or upon his own initiative enter an order requiring that the absent person be notified of the proceeding and be given an opportunity to be joined as a party of record." Rule 28-5.107, Florida Administrative Code. There exists no administrative writ for joining a non-petitioning party in a substantial interest proceeding in the way judicial process can join a party within a court's jurisdiction in a pending judicial proceeding. The two cases respondent cites in support of its motion, Bannon v. Trammell, 118 So. 167 (Fla. 1928), and Heisler v. Florida Mortgage Title and Bonding Co., 142 So.2d 242 (Fla. 1932), are inapposite, because both cases involve judicial, not administrative proceedings. HRS does not really seek joinder of the United States Department of Health and Human Services; instead, HRS argues that the petition should be dismissed and the controversy relegated to federal court because it "believes that the Secretary [of the United States Department of Health and Human Services] will not succumb voluntarily to the jurisdiction of the Division of Administrative Hearings." 2/ Motion to Dismiss, p. 3. Participation by the Department of Health and Human Services in the present proceedings would have been welcomed, as the Hearing Officer indicated at the prehearing conference, but neither the Department itself nor either of the parties requested such participation. In any event, petitioner is seeking additional reimbursement from respondent HRS, not from any federal agency. Medicaid providers like petitioner do not receive any funds directly from the Department of Health and Human Services. Since "[t]he contracts involved are clearly between the hospitals and [H]RS [, n]o third party requirement appears," Montana Deaconess Hospital v. Department of Social and Rehabilitation Services, 538 P.2d 1021, 1024 (Mont. 1975), and the Department of Health and Human Services is not an indispensable party to administrative proceedings arising out of contracts between HRS and Medicaid providers. HRS protests that it might find itself making additional reimbursement to petitioner, yet be deprived of the federal component of such expenditures. See 42 U.S.C. Section 1396b. This prospect is an unlikely one in view of the fact that the Department of Health, Education, and Welfare has repeatedly cited HRS for noncompliance because of under-reimbursements to Medicaid providers. If the Federal Government fails to contribute to any additional reimbursement, it would not be for want of a forum in which HRS could present its claim. There are administrative mechanisms within the Department of Health and Human Services, including its Grant Appeals Board. See 42 U.S.C. Section 1116(d). After exhaustion of administrative remedies, HRS would have access to the courts, if necessary. See Georgia v. Califano, 446 F. Supp. 404 (N.D. Ga. 1977). There is no danger that HRS will be deprived of an opportunity to litigate any question about federal contribution because the United States Department of Health and Human Services is not a party to the present proceedings. MOTION FOR PARTIAL SUMMARY JUDGMENT Petitioner's motion for partial summary judgment was amended ore tenus at the final hearing to delete "and FYE March 31, 1981," on page 1 of the motion, after leave to amend was granted, without objection by respondent. As a technical matter, the motion is a misnomer, since substantial interest proceedings before the Division of Administrative Hearings eventuate in recommended orders, not judgments. But, petitioner's contention that there is no genuine issue as to any material fact is well founded. The parties have so stipulated. (T. 70; Mr. Weiss's letter of November 12, 1981.) At the time the petition was filed, the parties contemplated numerous factual disputes which, however, had all been resolved by the time of final hearing through the commendable efforts of counsel. In the absence of a disputed issue of material fact, the Administrative Procedure Act provides for informal proceedings pursuant to Section 120.57(2), Florida Statutes (1979), "[u]nless otherwise agreed." Section 120.57, Florida Statutes (1979). On December 7, 1981, the parties filed their Stipulation and Agreement to proceed pursuant to Section 120.57(1), Florida Statutes (1979), notwithstanding the absence of any factual dispute. DISPUTE COGNIZABLE In the present case, as in Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), there "can be no doubt that the Department's contract . . . calls for agency action which potentially affects . . . substantial interests," 363 So.2d at 812, of the petitioning contractor. Cf. Solar Energy Control, Inc. v. State Department of Health and Rehabilitative Services, 377 So.2d 746 (Fla 1st DCA 1979) (reh. den. 1980) (disappointed bidder substantially affected). See Section 120.52(10)(a), Florida Statutes (1979). In Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), the petitioner sought "additional money and construction time under its contract," 363 So.2d at 813, with a state agency. The court found "no difficulty . . . with sovereign immunity," 363 So.2d at 813, and held that a contractor with a state agency could invoke the Administrative Procedure Act in order to enforce its contract, even though the contract purported to establish another method for settling the contract dispute. A clause in the contract at issue in the Graham Contracting case contemplated agency action outside the parameters of Chapter 120, Florida Statutes, in resolving certain disputes under the contract. In contrast, each of the successive contracts on which petitioner predicates its claim in the present case contains the following provision: "The hospital agrees to comply with the rules, policies, and procedures required by [HRS's] Division of Family Services for this program." Among the rules thus incorporated by reference into the contracts between petitioner and respondent is Rule 10C-7.35, Florida Administrative Code, which provides: An official representative of a facility participating in Medicaid, . . . or . . . representative, may appeal Medicaid Program policy, procedure, or administrative rulings whenever the provider feels there has been an unfair, illegal or inappropriate action by the Department affecting them or their facility. (1) Provider Appeals The Administrative Procedures [sic] Act, Chapter 120 F.S., provides for provider appeals and hearings, which are conducted by the Division of Administrative Hearings in the Department of Administration. The spe- cific rule relative to the appeal and hearing process is Chapter 28-3 [sic] of the Florida Administrative Rules. . . Since, by reference to Rule 10C-7.35, Florida Administrative Code, the contract in the present case incorporates Chapter 120, Florida Statutes, the applicability of the Administrative Procedure Act is even clearer here than in the Graham Contracting case. THE MERITS The parties have stipulated that petitioner has been reimbursed by respondent less than its reasonable costs of providing covered inpatient hospital services over the time period in question. Under-reimbursement of this kind is not authorized by Section 409.266, Florida Statutes, which incorporates the federal statutory requirement that hospitals which, like petitioner, provide Medicaid services be reimbursed by respondent for reasonable costs incurred, in accordance with an approved State Plan, and not some lesser amount. 42 U.S.C. Section 1396a(a)(13)(B), Pub. L. 89-97, Section 121(a) redesignated 42 U.S.C. Section 1396a(a)(13)(D), Pub. L. 90-248, Section 224(a). All Florida "State Plan provisions . . . approved by HEW and . . . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, commit HRS to reimburse hospitals [like petitioner] that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Prehearing Stipulation, Paragraph 19. The record is clear. Respondent consistently reimbursed petitioner less than its reasonable costs of providing inpatient hospital services in order to cut its own expenses and in doing so jeopardized the entire Medicaid program. This cannot be condoned, even though respondent acted under color of law, viz., Rule 10C-7.39(6), Florida Administrative Code [now repealed and declared invalid; see Pan American Hospital Corporation v. Department of Health and Rehabilitative Services, No. 81-1480R (DOAH; December 4, 1981)], and even though a lack of money or, at least, an apparent shortage was the reason for respondent's parsimony. The question remains, however, whether this dereliction on respondent's part should inure to the benefit of petitioner; and the answer turns on the construction of the agreement between the parties attached as an appendix to this order. Petitioner argues cogently that public policy has clearly been enunciated by statute to be full reimbursement for costs reasonably incurred by Medicaid providers in furnishing covered services. There can be no clearer expression of public policy than a statute duly enacted; and the reasons behind the full reimbursement policy are themselves compelling: to deal fairly with the providers, not only for fairness sake, but also to assure their participation in the program, and to remove any temptation to give indigent patients substandard care, inter alia. But, there is surely an overriding public policy requiring that a contractor with state government who voluntarily agrees to forego a claim against the public fisc be held to that agreement in administrative proceedings like these. The form agreement between petitioner and respondent, which they renewed annually, states: "It is understood that reimbursement will be made on the basis of an interim payment plan in the form of a per diem cost rate, plus a percentage allowance for the year in lieu of retroactive payment adjustment. However, . . . in the event the hospital did not receive its audited reasonable costs in the year prior to the current year then the hospital may deduct from the refund the prior year deficiency." (Emphasis supplied.) The agreement thus contemplated under-reimbursement and specified the method for recoupment, if there was to be any. Any "retroactive payment adjustment," as the result of administrative proceedings or otherwise, is specifically ruled out. Elsewhere in the parties' agreement is found this language: [T]he fiscal responsibility of [respondent's] Division of Family Services is subjected [sic] to the appropriation and availability of funds to the Medicaid program . . . by the state legislature every year." The terms of the agreement make clear that under-reimbursement is not in itself a breach. Respondent's failure to compute annually a "new percentage . . . based on hospital cost trends" was attributable to a shortage of funds; and the agreement provided that respondent's "fiscal responsibility" was subject to just such a shortage. In sum, provisions of the agreement petitioner voluntarily entered into with respondent operate in much the same way as a liquidated damages clause and preclude the relief petitioner seeks. Petitioner's invocation of the parol evidence rule is unavailing. Even if the stipulated facts outside the four corners of the form agreement are looked to, the course of dealing between these parties buttresses the construction outlined above. The fact that respondent may have settled a case it litigated against another hospital in some other way, as asserted by petitioner, is technically irrelevant.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent deny the prayer of the petitioner for additional reimbursement. DONE AND ENTERED this 10th day of December, 1981, in Tallahassee, Florida. ROBERT T. BENTON II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 1981.
Findings Of Fact Background Petitioner 1/ owns and operates a licensed nursing facility certified to participate in the Florida Medicaid Program. The facility, which is located at 490 South Old Wire Road, Wildwood, Florida, first became a Medicaid provider on January 27, 1987. Expanded from 120 beds to 180 beds prior to March, 1988, the average occupancy of WeCare is 175-176 residents. The Medicaid patient census is usually over 140 residents. Petitioner operates the only nursing facility in Sumter County providing skilled nursing services. By letter dated December 13, 1990, Petitioner requested an interim rate increase. The letter covers the 12-month period commencing October 1, 1990, which is the effective date of the federal Omnibus Budget Reconciliation Act of 1987 (OBRA). Petitioner requested an interim rate hike of $2.53 per patient day based on a total increase in expenses, due largely to OBRA requirements, of $161,815.32. By letter dated February 15, 1991, Respondent denied the request. The letter fails to address $114,415.32 in anticipated costs, mostly in the areas of nursing and new- resident assessment. These items were inadvertently omitted from Petitioner's December 13 letter. The February 15 response divides projected expenses into two categories: patient care costs and operating costs. The letter treats as patient care costs projected expenditures for food and employee wages to expand evening programs for residents, added consultant expenses for pharmaceutical advice, added consultant expenses for assistance with overall OBRA compliance and preparation for the state survey, new costs due to quality assurance committee meetings with department heads and outside consultants, and additional wages resulting from an increase in the federal minimum-wage standard. The February 15 letter treats as operating costs projected expenditures for the disposal of hazardous waste and maintenance requested by WeCare's resident council. Florida's Hedicaid Reimbursement Plan The Florida Title XIX Long-Term Care Reimbursement Plan , Version III, dated December 17, 1990 (Plan) 2/ is intended to provide reimbursement for reasonable costs incurred by economically and efficiently operated facilities. The Medicaid program pays a single per diem rate for all levels of nursing care. After a facility's first year of operation, a cost- settling process results in a final cost report, which serves as a baseline for the following years. Following the first year's operation, facilities file cost reports annually. In the absence of a special rate freeze, Respondent adjusts a facility's reimbursement rate twice annually based upon the factors discussed below. There are four components of a facility's total per diem rate for Medicaid patients. These cost components make up the total Medicaid patient per diem cost. The return on equity component 3/ is not involved in this case. The property cost component plays a minor role in this case. In a facility such as WeCare, which is owned rather than leased, property costs include depreciation, mortgage interest, equipment rent, ad valorem taxes, and property insurance. The two key reimbursement components in this case are "operating costs" and "patient care costs." The Plan defines these terms as follows: Patient care costs include those costs directly attributable to nursing services, dietary costs, activity costs, social service costs, and all medically ordered therapies. All other costs, exclusive of property cost and return on equity or use allowance costs are considered operating costs. Plan, pages 40-41. In general, the reimbursement program sets rates prospectively followed by a cost-settling process. In other words, a rate is set for the coming period in the manner described below. At the end of the period, a cost-settlement takes place. There are limited exceptions to the prospective orientation of the rate-setting process: the prospectively determined individual nursing home's rate will be adjusted. retroactively to the effective date of the affected rate under the following circumstances: an error was made by [Respondent] in the calculation of the provider's rate. A provider submits an amended cost report used to determine the rate in effect. An adjustment due to the submission of an amended cost report shall not be granted unless the increase in documented costs shall cause a change of 1 percent in the reimbursement rate. The amended cost report shall be filed by the filing date of the subsequent cost report or the date of the first field audit exit conference for the period being amended or the date a desk audit letter is received by the provider for the period being amended, whichever is earlier. Further desk or on-site audits of cost reports disclose a change in allowable costs in those reports. Plan, pages 31-33. In this case, Petitioner seeks "interim changes in [its] component reimbursement rates, other than through the routine semi-annual rate setting process." Plan, page 33. Like normal reimbursement rates, interim rates are set prospectively and then cost-settled at the end of the interim rate period. Plan, page 2. Accounting for property costs under the Fair Rental Value System (FRVS), Petitioner is ineligible for an interim change in Medicaid reimbursement rate under the Plan. Petitioner's sole means to obtain rate relief for property costs is to file for a rate adjustment as of January 1 and July 1 of any year. Plan, page 33-34. On January 1 and July 1, Petitioner may obtain an adjustment to the FRVS rate if "expenditures for capital additions and improvements totalling, $100 per licensed bed accrue in the 6-month periods ending April 15 or October 15 prior to rate semesters beginning July 1 and January 1, respectively." Plan, page 72. Because Petitioner has 180 beds, the threshold for the FRVS property cost adjustment is thus $18,000. The Plan does not require that the acquired property for which the rate adjustment is sought be purchased to comply with a new legal requirement. The reimbursement process is quite different for patient care and operating costs. Addressing interim rate hikes for these components of the reimbursement rate, the Plan provides: 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 providers current total per diem rate. If new State or Federal laws, rules, regulations, licensure and certification requirements, or new interpretations of existing laws, rules, regulations, or licensure and certification requirements require providers to make changes that result in increased or decreased patient care, operating, or capital costs, requests for component interim rates shall be considered for each provider based on the budget submitted by the provider. All providers' budgets submitted shall be reviewed by [Respondent] and shall be the basis for establishing reasonable cost parameters. In cases where new State or Federal requirements are imposed that affect all providers, appropriate adjustments s1hall be made to the class ceilings to account for changes in costs caused by new requirements effective as of the date of the new requirements or implementation of the new requirements, whichever is later. Interim rate requests resulting from 1. [devoted to property component interim rate hikes sought by non-FRVS providers] and 2. above must be submitted within 60 days after the costs are incurred, and shall be accompanied by a 12-month budget which reflects changes in services and costs. . . . An interim reimbursement rate, if approved, shall be established for estimated additional costs retroactive to the time of the change in services or the time the costs are incurred, but not to exceed 60 days before the date [Respondent] receives the interim rate request. The interim per diem rate shall reflect only the estimated additional costs, and the total reimbursement rate paid to the provider shall be the sum of the previously established prospective rates plus the interim rate. . . Interim Rate Settlement. Overpayment as a result of the difference between the approved budgeted interim rate and actual costs of the budgeted item shall be refunded to [Respondent]. Underpayment as a result of the difference between the budgeted interim rate and actual costs shall be paid to the provider. Interim rates shall not be granted for fiscal periods that have ended. The determination of interim reimbursement rates is best illustrated by following the Plan through the typical rate-calculation process. A facility must first "calculate per diems for each of these four cost components [patient care, operating, property, and return on equity] by dividing the components' costs by the total number of Medicaid patient days from the latest cost report." Plan, page 41. The facility adjusts its "operating and patient care per diem costs that resulted from [the calculation set forth in the preceding paragraph] for the effects of inflation . Plan, page 41. This is done by "multiplying both of these per diem costs" by the rate of increase of the Florida Nursing Home Cost Inflation Index at the midpoint of the cost reporting period. Plan, page 41. This step takes the facility's per diem rates then in effect for the patient care cost and operating cost components and increases them by the applicable inflation rate. The facility calculates the adjustment for a low occupancy factor. In all cases, the operating, patient care, and return on equity components are calculated separately. Otherwise, this step is irrelevant to the present case. Plan, pages 41 et seq. The next step is to calculate the statewide ceilings for, among other components,, the patient care cost and operating cost. These ceilings are determined separately, as evidenced by the use of different standard deviations in the calculation of the respective ceilings. Plan, page 47. These ceilings are otherwise irrelevant to the present cases The Plan next requires the facility to "[e] stablish the target reimbursement for operating and patient care cost per diems for each provided." The target per diems limit the respective per diem rates of these two components even if the applicable ceilings and inflation adjustments otherwise warrant a rate increase. In other words, a facility's per diem rate for patient care may be below the ceiling and warrant an increase for inflation; however, the increased rate may not exceed the target rate. The "target" more frequently than the "ceiling" serves to limit rate increases for the operating cost per diem rate and patient care cost per diem rate. For each of the two per diem rates, the target limits the increase of the provider's then-current per diem rate, without regard to incentives, to the rate of increase of the Florida Nursing Home Cost Inflation Index multiplied by 1.786. Plan, pages 48 -49. The Plan requires each facility to calculate separately its operating cost per diem and patient care cost per diem. For each component, the Plan "requires that the facility receive the lowest of the rates--then-current plus inflation, target, or ceiling. Plan, pages 49-50. Thus, for instance, the patient care component could be limited by its target but the operating component could receive a full inflation increase. The importance of interim rate changes is that they increase the reimbursement rate against which the targets are calculated for operating and patient care cost per diem rates. In this manner, the interim rate hike raises the applicable targets. As noted above, if the new federal or state requirements affect all providers, the ceilings can also be raised, although this issue has not been addressed in this case. Cost Reports Three of Petitioner's cost reports were admitted into evidence. Two cover one-year periods ending June 30, 1989, and June 30, 1990. One covers a six-month period ending December 31, 1990. The most recent cost report includes a request by Petitioner to obtain a FRVS property cost rate adjustment for computer and software hardware purchased in the last six months of 1990. The report classifies these items as property for cost reimbursement purposes. The cost report is relevant as evidence of the proper classification of computer hardware and software and the proper means by which an FRVS provider may obtain an adjustment for additional property costs. 4/ The parties disagree as to which of the two earlier cost reports should be used to supply the threshold for Petitioner's request for an interim rate hike with respect to operating and patient care costs. Respondent insists that the source of Petitioner's "current total per diem rate," against which the 1% threshold is applied to determine eligibility for the interim rate hike, is the cost report for the year ending June 30, 1989. However, on or about October 30, 1990, Petitioner filed a cost report for the year ending June 30, 1990 (1990 cost report). This was about six weeks before applying for an interim change in the reimbursement rate. Respondent ignores the later cost report because it was filed late. However, there is no authority prohibiting the use of the more current cost report simply because it is filed late, at least when, as here, it is filed before the interim rate request is filed. 5/ For calculating the thresholds in this case, there is no difference in which cost report is used. Both parties used $38,000 as the threshold, which is sufficiently accurate under the facts of this case. The possible thresholds are $36,071 under the 1990 cost report 6/, which is hereby adopted, and $34,350 under the cost report for the prior year. 7/ New Cost Items Although the original request for an interim rate hike identifies more than $160,000 of new expenses necessitated by changes in the law, Petitioner refined its earlier estimate based on actual experience prior to the hearing. The new figure is $126,598.32, as identified at the hearing and in Petitioner Exhibit 42. 8/ Petitioner claims that changes in the law necessitated the following costs, which are stated, where applicable, as increases in expenses preexisting changes in the relevant law: PATIENT CARE PLANNING/RESTRAINT FREE ENVIRONMENT--SALARY NURSING 30,027.52 NURSING ASSISTANTS 19,762.73 DIETARY 4,073.23 TOTAL WAGES 53,863.48 TOTAL BENEFITS 10,234.06 TOTAL WAGES AND BENEFITS 64,097.54 ADMINISTRATIVE NURSING WARD CLERK 3,500.00 DATA ENTRY 513.00 IN-SERVICE EDUCATION 6,403.21 TOTAL WAGES 10,416.21 TOTAL BENEFITS 1,979.08 TOTAL WAGES AND BENEFITS 12,395.29 CONSULTANTS TO ASSURE COMPLIANCE WITH OBRA PHARMACY 440.00 SOCIAL SERVICE 250.00 DIETARY 1,093.75 TOTAL 1,783.75 AUTOMATION OF MDS AND RESIDENT TRUST FUND ACCOUNTING OUTSIDE DATA PROCESSING SERVICE 3,033.75 COMPUTER SOFTWARE 2,495.00 COMPUTER HARDWARE 1,540.00 TOTAL 7,068.75 MISCELLANEOUS OBRA MATTERS PRINT RESIDENTS' RIGHTS MATERIALS 401.05 B. GERIATRICS SURVEY AND TRAINING 500.00 C. ABUSE REGISTRY 285.00 D. WAGE AND HOUR FOR MAINTENANCE 11,178.00 E. MAINTENANCE BENEFITS 2,123.81 TOTAL 14,487.86 VI. OTHER REGULATORY CHANGES A. MINIMUM WAGE 13,827.84 B. MINIMUM WAGE BENEFITS 2,627.29 C. CHANGES IN OBRA/NFPA 9/ STANDARD 7,412.99 D. REMOVAL OF INFECTIOUS WASTES 2897.01 10/ TOTAL 26,765.13 GRAND TOTAL $126,598.32 Classification of New Cost Items Cost items IV.B, IV.C, and VI.C. are property costs representing $2495 and $1540 for computer software and hardware and $7412.99 for privacy curtains around residents' beds. Petitioner has failed to prove that these items, whose costs appear suitable for depreciation or cost-recovery, constitute patient care costs or operating costs. As property costs, Cost Items IV.B, IV.C, and VI.C are ineligible for an interim rate adjustment. Even if Petitioner had requested a FRVS property cost adjustment and thus raised the issue in this case, these items total only $11,447.99, which is below the $18,000 threshold for FRVS property cost rate adjustments. Because of the failure of these items to satisfy the threshold, as well as the fact that changing legal requirements are irrelevant to an adjustment in the property cost reimbursement rate, the remainder of the recommended order does not address Cost Items IV.B, IV.C, and VI.C. Cost Item VI.D, which is $2897.01 for infectious- waste removal, is an operating cost that is not a patient care cost. Cost Items VI.A and B, which are for $16,455.13 in wages and benefits due to an increase in the minimum-wage law, are operating costs that are partly patient care costs. Based partly on the testimony of Petitioner's accountant, one-half of the minimum wage and benefits, such as in the laundry and housekeeping departments, is an operating cost that is not a patient care cost. The remainder of the minimum wage and benefits is a patient care cost. Thus, $8227.57 of Cost Items VI.A and B is an operating cost that is not a patient care cost, and $8227.56 of Cost Items VI.A and B is a patient care cost. Cost Items V.D and E, which are for $13,301.81 in maintenance wages and benefits, are also operating costs that are partly patient care costs. These items represent an incremental increase over typical maintenance costs previously incurred by the facility. Petitioner has proved that two-thirds of the additional maintenance costs are patient care costs expended to address better the needs of the residents, such as by providing immediate repairs to wheelchairs or making their rooms more homelike by, for example, hanging bulletin boards in the rooms, installing personal television sets, and installing locks on cabinet drawers. Thus, $8867.88 of Cost Items V.D and E are patient care costs. The evidence as to the remaining $4433.93 of Cost Items V.D and E is sufficient to establish these expenditures as operating costs, but insufficiently descriptive to prove that these maintenance expenses are properly classified as patient care costs. Cost Item VI.D, one-half of Cost Items VI.A and B, and one-third of Cost Items V.D and E total $15,558.51 in operating costs that are not patient care costs. This is below the $34,350 threshold required for an interim rate hike for operating costs. Due to the possibility that Respondent may reject the Conclusion of Law that the patient care costs and operating costs must separately satisfy the threshold, the remainder of the recommended order discusses Cost Item VI.D. Description of Cost Items Background Prior to making any changes at the WeCare nursing facility following the effective date of OBRA, Petitioner was in full compliance with all applicable law and had earned and maintained a superior rating. None of the cost items was expended to eliminate pre-OBRA substandard conditions. In addition, patient needs were generally unchanged during the year preceding the effective date of OBRA and the following year. In other words, there were no significant changes in patient mix with respect to activity, levels of admissions and discharges, or other matters affecting costs. The largest portion of Petitioner's claim is Cost Item I, which comprises $64,097.54 in wages and benefits for nurses, nurse assistants, and dietary services. The nursing item is for 1.43 fulltime equivalents, the nursing assistant item is for 1.9 fulltime equivalents, and the dietary item is for 0.35 fulltime equivalents. Following the implementation of OBRA, WeCare changed its resident assessment forms. Previously, the facility had used primarily a standard admission record and nursing history and assessment to assess initially the new resident. These forms required about one-half hour per patient to complete. The new standardized assessment form has become known as the Minimum Data Set (MDS). The 11-page MDS is a highly sophisticated instrument that requires comprehensive data collection far more elaborate than that previously undertaken. These data must be obtained from the resident and, in many cases, other sources. The MDS also contains an intricate analytic section. In general, the MDS standardizes the resident- assessment process by which nursing staff collect and analyze data, form conclusions, and recommend interventions. The MDS is also a major step toward assembling a national database on the burgeoning population of nursing-facility residents. Even without regard to the analytic features of the MDS, the old resident assessment forms are different by kind, not degree, from the MDS. The new form requires that the facility's personnel invest considerably greater time and effort assessing each resident's functional abilities. The MDS elicits a richly detailed description of an individual and his needs and abilities, and many questions in the MDS require careful and thoughtful observation of the resident. For instance, the first page of the MDS requires important information concerning the resident's legal status. The array of options include legal guardian, durable power of attorney/health care proxy, health care surrogate, and family member. The same page also demands that the facility personnel determine if the resident has effectuated a living will, do-not- resuscitate code, organ donation, feeding or medication restriction, or autopsy request. Encouraging the resident's involvement with the outside community, the first page concludes by asking if the resident is registered to vote. The second page deals with cognitive patterns. This section also places demands on facility personnel considerably greater than those required by the old resident assessment forms. Personnel must check the resident's short- term and long-term memory and his ability to recall the current season, location of his own room, faces of staff, and his presence in a nursing facility. Personnel must assess the resident's ability to make decisions; the four options range from independent to severely impaired. Personnel must also assess the resident's tendency toward disordered thinking or delirium with five optional specific descriptions, such as "cognitive ability varies over course of day." Twenty-five options are contained in the section of the MDS covering the resident's ability to communicate. These data range from whether he wears a hearing aid or uses another receptive communicative technique such as lip reading to very detailed descriptions of the extent to which he can make himself understood and, in a separate set of questions, understand others. The level of detail is intense throughout the MDS. Other areas covered include physical functioning and structural problems (with 12 options to describe the resident's body control problems ranging from loss of balance to loss of limbs); continence; psychosocial wellbeing (including his level of identification with past roles and life status); mood and behavior patterns; activity pursuit patterns; disease diagnoses (32 options); health conditions (22 options); oral/nutritional status; skin condition; medication,' use; and special treatment and procedures. The analytic aspect of the MDS is contained in the Resident Assessment Protocol (RAP). The RAP references by letter and number nearly all of the answers," supplied on the MDS. The RAP legend supplies a matrix by which these answers are analyzed to determine if they require (trigger) an identified intervention. The RAP even quantifies the extent to which an intervention is likely necessary. These triggers are very detailed and quantify a decision-making process that gas subjective and necessarily more variable prior to the introduction of the MDS. The MDS takes at least one hour more to complete per resident than did the old forms. Petitioner's personnel have tried to avoid duplication. However, Respondent cited Petitioner for a deficiency involving their elimination of one of the pre- OBRA forms in WeCare's first audit following implementation of OBRA. Moreover, quarterly updates of the MDS take additional time, although only selected information is required at such times. Recognizing the increased importance of the initial resident assessment, Petitioner assigned the primary responsibility for the task to the three nurses who serve as coordinators of the three 60-bed units at WeCare. While working on the MDS forms, the unit coordinators' responsibilities are assumed by licensed nurses. The additional work presented by the MDS over the old form requires 1.43 licensed nurse fulltime equivalents. The cost of this is reflected in Cost Item I.A, which is $30,027.52, exclusive of benefits. Benefits were calculated in Petitioner Exhibit 8 at 19% of wages, so the benefits attributable to Cost Item I.A equal $5705.23. Petitioner has failed to establish that the nursing assistants, reflected as cost Item I.B, were required by to complete the new MDS form or any-other new OBRA requirement. The substance of Petitioner's evidence in this regard amounts to proving that: a) no other variables (e.g., change in patient mix or number) could account for the increased hours and b) nursing assistant hours increased after OBRA became effective. Without specific proof of the activities performed by the nursing assistants, it is impossible to determine if their efforts were necessitated by OBRA, such as in the MDS-assessment process, or were merely associated with nonrecurring activities by which facilities such as WeCare digested OBRA and tried to determine the extent to which they had to change prior practices. It is doubtful that Petitioner could have established the requisite relationship between the nursing assistant work and the MDS duties. Cost Item I.A is a reasonable allowance for the new work required of nurses by the MDS forms. Exclusive of benefits, $30,027.52 represents 1.43 fulltime nursing equivalents or about 2980 hours annually of nursing service. There is no evidence in the record linking the expenditure of additional nursing hours to the preparation of the MDS forms, even after consideration of the more limited quarterly reassessments. Petitioner likewise failed to establish that any new OBRA requirement, including the preparation of the MDS, was associated with the dietary cost of $4073.23, which is Cost Item I.C. Petitioner proved that Cost Items II.A and B, totalling $4013 of wages and $762.47 of benefits, were associated with the processing of the data collected in the process of preparing the MDS. The data-processing duties of these individuals are a necessary part of processing the RAPs and triggers in the MDS and determining if an intervention is indicated or required. The ward clerk and data entry person relieved the Director of Nursing of data-processing duties that, unlike the data-collection part of the MDS, do not require nursing expertise to perform. The processing of the RAPs and triggers, although important and time-consuming, is largely mechanical task. Petitioner proved that Cost Item IV.A, which is $3033.75 for outside data processing services, was also associated with the processing of the data collected in the process of preparing the MDS. These services ran from October, 1990, through April, 1991, when the ward clerk and data entry person assumed these duties. The outside data processing, as well as the ward clerk and data entry person, also included trust fund and asset accounting on behalf of residents. Petitioner failed to establish that the services of the in-service coordinator, as reflected in Cost Item II.C, were required by OBRA. Prior to OBRA, the Director of Nursing performed nearly all of the in-service activities. When OBRA was implemented, the Director of Nursing, could not perform these tasks because she was, at first, intensely involved with all aspects of ensuring that WeCare attained or maintained compliance with the new law. A nursing facility and its personnel must remain familiar with federal and state laws governing nursing facilities and their professions. However, nothing in OBRA required new levels of in-service education of nursing facility staff. By contrast, Petitioner proved that the promotion of residents' rights and welfare necessitated Cost Item V.B, which is $500 for a geriatrics survey and training. Petitioner showed that the services of Myra Carpenter, which are Cost Item V.B, were narrowly focused to assist Petitioner's personnel in promoting the rights and welfare of geriatric residents. Cost Items I.A and V.B are sufficient to allow for whatever training was necessary of the unit coordinators in charge of completing the MDS forms and general facility personnel as to the promotion of the rights of residents, especially geriatric residents. Petitioner failed to prove that Cost Items III.A, and C, which are $440 for pharmacy and $1093.7.5 for dietary consultants, were associated with army new OBRA requirement. As discussed in the Conclusions of Law, prior state requirements in these areas were rigorous. For the same reason, Petitioner failed to prove that OBRA necessitated Cost Item V.A, which is $401.05 for printing residents' rights manuals. Petitioner proved that the promotion of residents' rights and welfare was directly responsible for Cost Item III.B, which is $250 for a social service consultant. He increased his hours after OBRA to meet the demands of the residents and the residents' council for operational and structural changes at WeCare. Petitioner proved that the promotion of residents' rights and welfare was also associated with the two-thirds of Cost Items V.D and E previously determined to constitute patient care costs. 11/ The portion of these maintenance wages and benefits assigned to patient care costs constitute part of Petitioner's effort to promote the rights and welfare of the residents. Many of WeCare's residents are young persons who, often afflicted with multiple sclerosis, still possess considerable mental acuity. Adjustment to the environment of a nursing facility can be difficult for such persons, as well as for other residents. Empowering the residents to demand and obtain changes in their living environment is one useful means of promoting the residents' rights and, especially, welfare. The evidence was unconvincing that all of Cost Items V.D and E were devoted to the type of patient-care maintenance described in the preceding paragraph. Petitioner thus failed to establish the nature of the remaining one-third of Cost Items V.D and E. In the absence of proof to the contrary, these expenditures are characterized merely as operating expenses unassociated with any aspect of OBRA. Respondent has emphasized OBRA's promotion of residents' rights and welfare in seminars devoted to OBRA and post-OBRA facility surveys. As to the latter, the surveys of WeCare prior to OBRA typically took a couple of hours. Following OBRA, the surveys take four hours with much of the additional time devoted to resident interviews to ensure that the facility is promoting residents' rights and, especially, welfare. The OBRA mandates, as properly construed by Respondent, increasingly emphasize results or outcome's, not merely processes or procedures. Although OBRA largely leaves to the nursing facility the decision of how specifically to promote residents' rights and welfare, the new requirements of OBRA, as discussed in the Conclusions of Law, remain clear, ambitious, and enforceable. Cost Items III.B, V.B, and two-thirds of V.D and E, although not explicitly dictated by OBRA, were reasonably expended by Petitioner to promote residents' rights and, especially, welfare. Petitioner has proved that Cost Item VC, which is $285 for checking the names of employees on the abuse registry, was associated with a new OBRA requirement. The minimum-wage hike and benefits, which are Cost Item VI.A and B totalling $16,455.13, were mandated by a change in law and exclude any "ripple-effect" in other wages Petitioner proved that one-half of the minimum.-wage hike and benefits or $8227.56, are patient care costs. The remaining $8227.57 of minimum-wage hike and benefits, which obviously were also mandated by law, are operating costs that are not patient care costs. The only other operating cost that is not a patient care cost is Cost Item VI.D, which is $2897.01 for the removal of infectious wastes. Petitioner has proved that the additional costs in connection with the disposal of infectious wastes were associated with a change in state law. Based on the foregoing, Petitioner has proved that $61,672.41 of its expenditures are patient care costs associated with new OBRA requirements and a change in the minimum-wage laws. Petitioner failed to prove that the remaining $37,919.41 of its patient-care costs were associated with any change in law. Petitioner has proved that $11,124.58 of its expenditures are operating costs, other than patient care costs, that were associated with new infectious waste regulations and minimum-wage laws. Petitioner failed to prove that tie remaining $4433.93 of operating costs, which are one-third of the maintenance wages and benefits, were,' associated with any change in law. The remaining $11,447.99 of Petitioner's expenditures are property costs. For the reasons set forth above, the necessity of these costs is irrelevant to this proceeding.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a final order determining that Petitioner is entitled to an interim rate adjustment of $0.96 per diem. ENTERED this 20 day of March, 1992, in Tallahassee, Florida. ROBERT E. MEALE 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 20 day of March, 1992.
