Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement, attached hereto and incorporated herein as Exhibit “1.” Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the Wray of SJ tembos 2014, in Tallahassee, Florida. LI [for ELIZABETH{BUDEK, SECRETARY Agency for Health Care Administration Final Order Invoice No. NH16766 Page 1 of 3 Filed October 3, 2014 11:45 AM Division of Administrative Hearings A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. ‘ " Peter A. Lewis, Esquire Peter A Lewis, P.L. 3023 North Shannon Lakes Drive Suite 101 Tallahassee, Florida 32309 palewis@petelewislaw.com (Via Electronic Mail) _ Bureau of Health Quality Assurance Agency for Health Care Administration (Interoffice Mail) Stuart Williams, General Counsel Agency for Health Care Administration (Interoffice Mail) Shena Grantham, Chief Medicaid FFS Counsel (Interoffice Mail} Agency for Health Care Administration Bureau of Finance and Accounting (Interoffice Mail) Jeffries Duvall, Esquire Assistant General Counsel Agency for Health Care Administration (Interoffice Mail) Zainab Day, Medicaid Audit Services Agency for Health Care Administration (Interoffice Mail) State of Florida, Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (Via U.S. Mail) Final Order Invoice No, NH16766 Page 2 of 3 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by the designated method of delivery on this the / day of ( Niles , 2014. Richard J. Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 412-3671 Final Order Invoice No. NH16766 Page 3 of 3 STATE OF FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION SUNBELT HEALTH AND REHAB CENTER, INC, Petitioner, PROVIDER NO.: 032041200 vs. INVOICE NO.: NH16766 STATE OF FLORIDA, AGENCY FOR HEALTH CARE ADMINISTRATION, Respondent. / ETTLE: ENT The Respondent, Agency for Health Care Administration (“AHCA” or “Agency"}, and the Petitioner, Sunbelt Health and Rehab Center, Inc., (“PROVIDER”), stipulate and agree as follows: 1. This Agreement is entered into between the parties to resolve disputed issues arising from a collection matter assigned case number NH16766. 2. The PROVIDER is a Medicaid provider, Provider Number 032041200, in the State of Florida operating a nursing home facility. 3. On July 15, 2013, the Agency notified the PROVIDER of its determination that PROVIDER was responsible to the Agency for an overpayment in the amount of $95,610.99. 4. The PROVIDER timely filed an appeal regarding this determination challenging the Agency’s application of the interest rate in the FRVS property component that had been used to set the Medicaid per diem rate generating the overpayment. 5. Subsequent to the filing of the petition for administrative hearing, AHCA and the PROVIDER exchanged documents and discussed the adjustment to the interest rate used to determine the FRVS component of the Medicaid per diem. As a result of the aforementioned exchanges, the parties agree that AHCA will revise the PROVIDER’s January 1, 2014 per diem rates to reflect a fixed FRVS interest rate of 5.65%. The 5.65% fixed interest rate shall be used to establish the FRVS component of PROVIDER’s Medicaid per diem rate for all subsequent rate semesters unless the interest rate is required to be Sunbelt Health & Rehab Center, Inc. Settlement Agreement Page 1of5 Exhibst | revised in accordance with the provisions of the Florida, Title XIX, Long-Term Care Reimbursement Plan. 6. In order to resolve this matter without further administrative proceedings, the PROVIDER and AHCA expressly agree to the adjustment resolutions, as set forth in paragraph 5 above, completely resolve and settle this case and this agreement constitutes the PROVIDER'S withdrawal of its petition for administrative hearing, with prejudice. 7. The PROVIDER and AHCA further agree that the Agency shall recalculate the per diem rates for the above-stated period and issue a notice of the recalculation. Where the PROVIDER was overpaid, the PROVIDER will reimburse the Agency the full amount of the overpayment within thirty (30) days of such notice. Where the PROVIDER was underpaid, AHCA will pay the PROVIDER the full amount of the underpayment within forty- five (45) days of such notice. Payment shall be made to: AGENCY FOR HEALTH CARE ADMINISTRATION Medicaid Accounts Receivable—Mail Stop 14 2727 Mahan Drive, Building 2, Suite 200 Tallahassee, Florida 32308 Notices to the PROVIDER shall be made to: Peter A. Lewis, Esquire Peter A. Lewis, P.L. 3023 North Shannon Lakes Drive, Suite 101 Tallahassee, Florida 32309 Payment shall clearly indicate it is pursuant to a settlement agreement and shall reference the case number and the Medicaid provider number. 8. PROVIDER agrees that failure to pay any monies due and owing under the terms of this Agreement shall constitute the PROVIDER'S authorization for the Agency, without further notice, to withhold the total remaining amount due under the terms of this agreement from any monies due and owing to the PROVIDER for any Medicaid claims. 9. Either party is entitled to enforce this Agreement under the laws of the State of Florida; the Rules of the Medicaid Program; and all other applicable federal and state Sunbelt Health & Rehab Center, Inc. Settlement Agreement Page 2 of 5 laws, rules, and regulations, 10. This settlement does not constitute an admission of wrongdoing or error by the parties with respect to this case or any other matter. 11. Each party shall bear their respective attorney's fees and costs, if any. 12. The signatories to this Agreement, acting in their respective representative capacities, are duly authorized to enter into this Agreement on behalf of the party represented, 13. The parties further agree that a facsimile or photocopy reproduction of this Agreement shail be sufficient for the parties to enforce the Agreement. The PROVIDER agrees, however, to forward a copy of this Agreement to AHCA with original signatures, and understands that a Final Order may not be issued until said original Agreement is received by AHCA. 14. This Agreement shall be construed in accordance with the provisions of the laws of Florida. Venue for any action arising from this Agreement shall be in Leon County, Florida. 15. This Agreement constitutes the entire agreement between the PROVIDER and AHCA, including anyone acting for, associated with, or employed by them, respectively, concerning all matters and supersedes any prior discussions, agreements, or understandings: There are no promises, representations, or agreements between the PROVIDER and AHCA other than as set forth herein. No modifications or waiver of any provision shall be valid unless a written amendment to the Agreement is completed and properly executed by the parties. 16. This is an Agreement of settlement and compromise, recognizing the parties may have different or incorrect understandings, information and contentions, as to facts and law, and with each party compromising and settling any potential correctness or incorrectness of its understandings, information, and contentions as to facts and law, so that no misunderstanding or misinformation shall be a ground for rescission hereof. 17. The PROVIDER expressly waives in this matter their right to any hearing pursuant to §§120.569 or 120.57, Florida Statutes, the making of findings of fact and conclusions of law by the Agency, and all further and other proceedings to which it may be Sunbelt Health & Rehab Center, Inc. Settlement Agreement Page 3 of 5 entitled by law or rules of the Agency regarding these proceedings and any and all issues raised herein, other than enforcement of this Agreement. The PROVIDER further agrees the Agency shall issue a Final Order which adopts this Agreement. 18. This Agreement is and shall be deemed jointly drafted and written by all parties to it and shall not be construed or interpreted against the party originating or preparing it. 19. To the extent any provision of this Agreement is prohibited by law for any reason, such provision shall be effective to the extent not so prohibited, and such prohibition shall not affect any other provision of this Agreement. 20. This Agreement shall inure to the benefit of and be binding on each party’s successors, assigns, heirs, administrators, representatives, and trustees. SUNBELT HEALTH AND REHAB CENTER, INC. Dated: Spt 2014 Seen Dated: Printed Title of Providers’ OCF Dated: 4-9- Providers’ Representative ——_____, 2014 > 2014 Legal Counsel for Provider Sunbelt Health & Rehab Center, Inc. Settlement Agreement Page 40fS FLORIDA AGENCY FOR HEALTH CARE | ADMINISTRATION 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 | 4 Lh : Dated: G/26 2014 Justin Senio Deputy Secretary, Medicaid .S AGI pated: Z//F 2014 Stuart Williams General Counsel Dated: ) | 19 , 2014 Sh¢ya Gran Medicaid FFS Sunbelt Health & Rehab Center, Inc. Settlement Agreement Page 5 of 5 FLORIDA AGENCY FOR HEATH CARE ASMINISTRATION, pecan Better Heaith Care for aif Floridians cS ETARY EK CERTIFIED MAIL RECEIPT REQUESTED: Of 7108 2433 3937 6307 1806 July 15, 2013 Nursing Home Administrator Sunbelt Health & Rehab Center 305 East Oak Street Apopka, FL 327@2 Dear Administrator: You have been notified by the Office of Medicaid Cost Reimbursement Analysis of adjustments to your Medicaid reimbursement rates on the remittance voucher run dated: 7/13/13. The adjustments resulted from changes in your cost reports. This action has resulted in a balance due to the Agency in the amount of $95,610.99 for provider number 03204 1200/ invoice number NH 16766. If payment is not received, or arranged for, within 30 days of receipt of this letter, the Agency shall withhold Medicaid payments in accordance with the provisions of Chapter 409.913(27), F.S. Furthermore, pursuant to Sections 409.913(25) and 409.913(15), F.S., failure to pay in full, or enter into and abide by the terms of any repayment schedule set forth by the Agency may result in termination from the Medicaid Program. Likewise, failure to comply with all sanctions applied or due dates may result in additional sanctions being imposed. If the overpayment cannot be recouped by this office, Florida law authorizes referral of your account to the Department of Health and to a collection agency. All costs incurred by the Agency resulting from collection efforts will be added to your balance. Additionally, be advised that this referral does not relieve you of your obligation to make payment in full or contact this office to arrange mutually agreeable repayment terms. In addition, amounts due to the Agency shall bear interest at ten percent (10%) per annum from the date of this letter on the unpaid balance until the account is paid in full. The interest accrual will not be assessed if payment is received by the Agency within 30 days. You have the right to request a formal or informal hearing pursuant to Section 120.569, F.S. Ifa request for a formal hearing is made, the petition must be made in compliance with Section 28- 106.201, F.A.C. and mediation may be available. If a request for an informal hearing is made, the petition must be made in compliance with rule Section 28-106.301, F.A.C. Additionally, you are hereby informed that if a request for a hearing is made, the petition must be received by the Agency within twenty-one (21) days of receipt of this letter. For more information regarding your hearing and mediation rights, please see the attached Notice of Administrative Hearing and Mediation Rights. 2727 Mahan Drive, MS#14 Visit AHCA online at Tallahassee, Florida 32308 http://ahca.myflorida.com Please include a copy of the enclosed remittance advice to assure Proper posting of payments to your provider account. Should you have any questions regarding the Medicaid provider account balance information contained in this notice, please contact Julie Chasar (850) 412-4877. Questions regarding the reimbursement rate changes should be directed to Thomas Parker, Office of Medicaid Cost Reimbursement, at (850) 412-4110, Sincerely, Julie Chasar Medicaid Accounts Receivable JFC - July 15, 2013 PLEASE INCLUDE THIS REMITTANCE ADVICE WITH YOUR PAYMENT — eR EES REIS ANCE ADVICE WITH YOUR PAYMENT Remit Payment to: Agency for Health Care Administration Medicaid Accounts Receivable MS# 14 2727 Mahan Drive Bldg. 2 Ste. 200 Tallahassee, FL 32308 Attn: Sharon Dixon FROM: Sunbelt Health & Rehab Center 305 East Oak Street Apopka, FL 32703 Provider No. 032041200 Invoice No. NH16766 STATEMENT OF ACCOUNT CERTIFIED MAIL: 91 7108 2133 3937 6307 1800 VOUCHER RUN DATE: 7/13/13 BALANCE DUE: — $05.610.96 PAYMENT IS DUE WITHIN 30 DAYS FROM THE DATE OF THIS LETTER. Amount Enclosed: $ NOTICE OF ADMINISTRATIVE HEARING AND MEDIATION RIGHTS RE SE ARING AND MEDIATION RIGHTS The written request for an administrative hearing must conform to the requirements of either Rule 28-1 06.201(2) or Rule 28-} 06.301 (2), Florida Administrative Code, and must be received by the Agency for Health Care Administration, by 5:00 P.M. no later than 21 days after you received the SBR. The address for filing the written request for an administrative hearing is: Richard J. Shoop, Esquire Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 Fax: (850) 921-0158 The request must be legible, on 8 % by 11-inch white paper, and contain: 1. Your name, address, telephone number, any Agency identifying number on the SBR, if known, and name, address, and telephone number of your representative, if any; 2. An explanation of how your substantial interests will be affected by the action described in the SBR; 3. A statement of when and how you received the SBR; 4. Fora request for formal hearing, a statement of al] disputed issues of material fact; 5. Fora request for formal hearing, a concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle you to relief: 6. For a request for formal hearing, whether you request mediation, if it is available; 7. Fora request for informal hearing, what bases Support an adjustment to the amount owed to the Agency; and 8. A demand for relief. A formal mediation may be available in conjunction with a formal hearing. Mediation is a way to use a f you and the Agency agree to mediation, it does not mean that you give up the right to a hearing. Rather, you and the Agency will try to settle your case first with mediation, If a written request for an administrative hearing is not timely received you will have waived your right to have the intended action reviewed pursuant to Chapter 120, Florida Statutes, and the action set forth in the SBR shall be conclusive and final.
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.
The Issue The issue for consideration in this case is whether the Agency for Health Care Administration is required by law and rule of the Agency to include the gain or loss on the sale of depreciable assets as the result of a sale or disposal, in the calculation of Medicaid allowable costs.
Findings Of Fact Prior to the hearing, the parties submitted a Joint Stipulation which is incorporated in part herein as follows: Petitioner purchased Orlando General Hospital ("OGH"), Medicaid provider number 120065, on December 31, 1990. Upon its sale, OGH merged into and became part of Adventist Health System/Sunbelt, Inc., wherein after it was known as Adventist Health System/Sunbelt, Inc., d/b/a Florida Hospital East ("Florida Hospital East"). Adventist Health System/Sunbelt, Inc., d/b/a Florida Hospital East is a wholly owned subsidiary of Adventist Health System Sunbelt Healthcare Corporation. Florida Hospital East assumed all of the assets and liabilities of OGH. OGH filed a terminating cost report for the fiscal period ending December 31, 1990. On December 31, 1990, the date of sale of OGH to Petitioner, OGH incurred a loss on the sale of the hospital, a depreciable asset. The loss on the sale of OGH was included on both OGH's Medicaid and Medicare terminating cost reports. A loss on the sale of a depreciable asset is the amount that the net book value of the asset sold exceeds the purchase price. A gain or loss on the sale of a depreciable asset is a capital cost. Due to the mechanism of the cost report, a loss on the sale of a depreciable asset is divided into "periods" based upon the time period to which the loss relates. The portion of the loss related to the fiscal year in which the asset is sold is referred to as a "current period" loss. The portion of the loss that relates to all fiscal years prior to the year in which the asset is sold is referred to as a "prior period" loss. Gains and losses related to the current period are included on Worksheet A of the Medicare and Medicaid cost report. Current period capital costs flow to Worksheet B-II Part and B Part III [sic] of the Medicaid cost report. Gains and losses related to the prior period are included on Worksheet E of the Medicare and Medicaid cost reports. OGH's current period is the fiscal year ending 12/31/90. OGH's prior periods in which it participated in the Medicaid Program are 10/24/84 through 12/31/89. OGH's audited Medicaid cost report included in allowable Medicaid costs a loss on the sale of OGH related to the current period. OGH's audited Medicaid cost report did not include in allowable Medicaid costs a loss on the sale of OGH related to the prior periods. The loss on the sale of OGH related to the current period was included in Worksheet A of OGH's audited Medicaid cost report. These costs, including the loss on the sale of OGH, flowed to Worksheet B Part II. OGH's audited Medicare cost report included as allowable Medicare costs the loss on the sale of OGH related to both the current and prior periods in the amount of $9,874,047. The loss from the sale of OGH related to the current period was included on Worksheet A of OGH's audited Medicare cost report. The costs from Worksheet A of OGH's audited Medicare cost report flowed to Worksheet B Part II of OGH's audited Medicare cost report. The loss related to the prior period was included on Worksheet E Part B of OGH's audited Medicaid cost report. The Agency utilizes costs included on Worksheet A of the Medicaid cost report to calculate Medicaid allowable costs. The Agency utilizes the capital costs included on Worksheet B Part II and/or B Part III to calculate allowable Medicaid fixed costs. The Agency does not utilize costs included on Worksheet E Part III to calculate Medicaid allowable costs. The Agency reimburses providers based upon Medicaid allowable costs. aa. The Agency did not include the portion of the loss on the sale of OGH related to the prior periods in the calculation of the OGH's Medicaid allowable costs. bb. Blue Cross and Blue Shield of Florida, Inc. (Intermediary), contracted with the Agency to perform all audits of Medicaid cost reports. Agency reimbursement to Medicaid providers is governed by Florida's Title XIX Inpatient Hospital Reimbursement Plan (Plan), which has been incorporated in Rule 59G-6.020, Florida Administrative Code. The Plan provides that Medicaid reimbursement for inpatient services shall be based upon a prospectively determined per diem. The payment is based upon the facility's allowable Medicaid costs which include both variable costs and fixed costs. Fixed costs include capital costs and allowable depreciation costs. The per diem payment is calculated by the Agency based upon each facility's allowable Medicaid costs which must be taken by the agency from the facility's cost report. Capital costs, such as depreciation, are found on Worksheet B, Part II and Part III. The Plan requires all facilities participating in the Medicaid program to submit an annual cost report to the Agency. The report is to be in detail, listing their "costs for their entire reporting year making appropriate adjustment as required by the plan for the determination of allowable costs." The cost report must be prepared in accordance with the Medicare method of reimbursement and cost finding, except as modified by the Plan. The cost reports relied upon by the Agency to set rates are audited by Blue Cross/Blue Shield of Florida, Inc. which has been directed by the Agency to follow Medicare principles of reimbursement in its audit of cost reports. Prior to January 11, 1995, the Plan did not expressly state whether capital gains or losses relating to a change of facility ownership were allowable costs. The 1995 amendment to the Plan contained language expressly providing "[f]or the purposes of this plan, gains or losses resulting from a change of ownership will not be included in the determination of allowable cost for Medicaid reimbursement." No change was made by the amendment to the Medicare principles of reimbursement regarding the treatment of gains and losses on the sale of depreciable assets. The Medicare principles of reimbursement provides that gains and losses from the disposition of depreciable assets are includable in computing allowable costs. The Provider Reimbursement Manual (HIM-15)(PRM), identifies the methods of disposal for assets that are recognized. They include a bona fide sale of depreciable assets, but do not mention a change of ownership. PRM Section 132 treats a loss on a sale of a depreciable asset as an adjustment to depreciation for both the current and periods. Depreciable assets with an expected life of more than two years may not be expensed in the year in which they are put into service. They must be capitalized and a proportionate share of the cost expensed as depreciation over the life of the property. To do so, the provider must estimate the useful life of the property based upon the guidelines of the American Hospital Association, and divide the cost by the number of years of estimated life. It is this yearly depreciation figure which is claimed on the cost report and which is reimbursed. When a depreciable asset is sold for less than book value (net undepreciated value), the provider suffers a loss. Petitioner claims that Medicare holds that in such a case it must be concluded that the estimated depreciation was erroneous and the provider did not receive adequate reimbursement during the years the asset was in service. Medicare accounting procedures do not distinguish between the treatment of a loss on the sale of depreciable assets as related to current and prior periods. PIM Section 132 requires that Medicare recognize the entire loss as an allowable cost for both the current and prior periods, and Medicare treated Petitioner's loss from the sale of its facility as an allowable cost for Medicare reimbursement under both current and prior periods. With the adoption of the January 1995 amendment, however, the wording of the state plan was changed to specifically prohibit gains or losses from a change of ownership from being included in allowable costs for Medicaid reimbursement. This was the first time the state plan addressed gains and losses on the disposal of depreciable assets resulting from a change of ownership. The Agency contends, however, that it has never reimbursed for losses on disposal of property due to a change of ownership, and that the inclusion of the new language was to clarify a pre-existing policy which was being followed at the time of the 1995 amendment, and which goes back to the late 1970s. It would appear, however, that the policy was never written down; was never conveyed to Blue Cross/Blue shield; was never formally conveyed to Medicaid providers; and was never conveyed to the community at large. When pressed, the Agency could not identify any specific case where the policy was followed by the Agency. While admitting that it is Agency practice not to treat losses from the sale of depreciable assets in prior periods as an allowable cost, Petitioner contends that it has been the Agency's practice to treat the loss on the sale of depreciable assets relating to the current period as an allowable cost, and cited several instances where this appears to have been done. The Agency contends that any current period losses paid were paid without knowledge of the Agency, in error, and in violation of the plan. On October 25, 1996, the Agency entered a Final Order in a case involving Florida Hospital/Waterman, Inc., as Petitioner, and the Agency as Respondent. This case was filed by the Petitioner to challenge the Agency's treatment of the loss on the sale of Waterman Medical Center, Inc., another of Adventist Health Systems/Sunbelt Healthcare Corporation, and the Final Order in issue incorporated a stipulation into which the parties had entered and which addressed the issue in question here. The stipulation included certain position statements including: A loss on the sale of depreciable assets is an allowable cost under the Medicare Principles of Reimbursement. The State Plan does not specify that the loss on the sale of a depreciable asset is to be treated in a manner different than under the Medicare Principles of Reimbursement. Thus the loss on the sale of a depreciable asset is an allowable cost under the State Plan. The Agency agrees, in accordance with the Medicare Principles of Reimbursement, that under the terms of the State Plan, prior period losses for Waterman will be allocated to prior periods and included in the calculation of the per diem and per visit rates. According to William G. Nutt, Petitioner's director of reimbursement, the only difference between the facts of the Waterman case and the instant case is that they relate to the sale of different facilities. The treatment of loss on the sale of depreciable assets as outlined in the Waterman stipulation is in conflict with the amended Plan and with the unwritten and unuttered Agency policy as urged by the Agency in this case. The Agency agreed in one case to a treatment of loss which it now rejects in the instant case. Petitioner urges that subsequent to the settlement of the Waterman case, but before the instant case was set for hearing, the parties engaged in settlement negotiations during which, according to counsel for the Agency, they made "significant" progress toward applying the settlement in the Waterman case to the current case. In a motion filed to delay the setting of this case for hearing, counsel for the Agency indicated the parties were "finalizing" settlement to resolve the case without resorting to a final hearing, and in a follow-up agreed motion for continuance, advised that the "parties [had] finalized a settlement document [which they were] in the process of executing. The settlement agreement reached by the parties was signed by a representative of the Petitioner and then forwarded to the Agency for signature. The document was not signed by the Agency, and when Petitioner sought enforcement of the "settlement" by an Administrative Law Judge of the Division of Administrative Hearings, the request was denied as being outside the jurisdiction of the judge, and the matter was set for hearing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration enter a Final Order including the loss on the sale of Orlando General Hospital as an allowable cost for determining Petitioner's entitlement to Medicaid reimbursement for both current and prior years. DONE AND ENTERED this 30th day of June, 1999, in Tallahassee, Leon County, Florida. ARNOLD H. POLLOCK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1999. COPIES FURNISHED: Joanne B. Erde, Esquire Broad and Cassel Miami Center Suite 3000 201 South Biscayne Boulevard Miami, Florida 33131 Jonathan E. Sjostrom, Esquire Steel Hector & Davis LLP 215 South Monroe Street Suite 601 Tallahassee, Florida 32301-1804 Mark S. Thomas, Esquire Madeline McGuckin, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308 Julie Gallagher General Counsel Agency for Health Care Administration 2727 Mahan Drive Building 3 Tallahassee, Florida 32308
Findings Of Fact Petitioner, Westchester General Hospital (WGH), is an osteopathic hospital located at 2500 S.W. 75th Avenue, Miami, Florida. It holds a license from respondent, Department of Health and Rehabilitative Services (HRS), and serves in an area of Dade County settled mostly by Cuban Refugees. On March 5, 1973, a participation agreement was executed by WGH and HRS wherein WGH agreed to provide certain hospital services to Medicaid patients in return for payment of reasonable costs incurred by such patients. Under that agreement, reimbursement was made on the basis of an interim payment plan in the form of a per diem cost rate. These rates were established by HRS based upon cost reports submitted by WGH. For the years 1979 and 1980, which are the pertinent years in this controversy, the Medicaid per diem reimbursement rates for WGH were as follows: 1-1-79 through 5-20-79 $175.71 per day 5-21-79 through 5-15-80 $166.55 per day 5-16-80 through 12-31-80 $203.52 per day In 1979 and 1980, a large number of Cuban refugees settled in the Dade County area and WGH provided Medicaid services to these refugees under its participation agreement. By virtue of a special ace of Congress, the refugees were also eligible for Medicare Part B coverage which paid various hospital charges, including radiology, laboratory, EKG, EEG and nuclear medicine. Consequently, the patients were eligible for both Medicaid and Medicare, and WGH received reimbursement under both programs for the same patients. The hospital's problems began when it first received preliminary or interim payments from the Federal government based upon charges for providing Medicare services to these indigents. Because charges are generally higher than costs in a hospital setting, the payments were later adjusted downward by the government at year-end when WGH's Medicare cost report was prepared. Nonetheless, under the then effective Rule 10C-7.36, Florida Administrative Code, WGH was required to submit its Medicaid claims for payment within forty- five days after services were rendered or the patient discharged. Therefore, WGH submitted its requests for payment to HRS before the true-up at year-end was performed by the Federal government. These claims reflected that WGH had been reimbursed by Medicare at the interim payment level rather than the year-end adjusted amount since the latter amounts were not yet known. As discussed in greater detail hereinafter, the interim payments were used as an offset to the Medicaid payments due from the state. In 1979, after being gently nudged by the Federal government, HRS discovered that a number of patients on the State Medicaid eligibility file also were eligible for Medicare coverage and that Medicare, rather than Medicaid, was responsible for at least a part of their bills. This was determined by comparing the State's Medicaid file with Medicare computer tapes obtained from the Federal government. As a result of this discovery, HRS advised WGH on November 16, 1979, by letter that WGH must bill Medicare for hospital charges incurred by Medicaid patients with Medicare Part B coverage. The letter pointed out that Medicaid is the payer of last resort, and pays only after other third parties, including Medicare, pay their applicable portion of the medical bills. This was consistent with federal regulations which obligated HRS to identify third-party resources of Medicaid recipients, and to seek reimbursement from such third-party resources within 30 days after the end of the month in which it first determined a third party was responsible for the claim. Had it not pursued these third party resources, HRS risked the loss of federal funds. However, the same regulations also required HRS to "take reasonable measures to determine the legal liability of third parties to pay for services under the plan." Other than relying upon the interim payment amounts reflected on WGH's Medicaid claims, HRS made no effort to determine the actual legal liability of Medicare. Indeed, it was not until after May, 1980 that HRS had the capability to take reasonable measures to determine a third party's liability. On that date, it formed, at the insistence of the Federal government, a special "unit" for that specific purpose. Prior to that time, it was unable to comply with Federal regulations. In compliance with the letter, WGH reflected the interim Medicare payments on its Medicaid payment claims filed with HRS. However, to its consternation, it later learned that HRS did not take into account the interim nature of the payments, and used those amounts vis a vis adjusted amounts to calculate the amount of WGH's Medicaid reimbursement. The net result was the filing of Medicaid payment claims by WGH in 1979 and 1980 which reflected Medicare reimbursement at a much higher level than it actually received after year-end adjustments were made, and a concomitant reduction in Medicaid receipts from the State. WGH recognized its dilemma in early 1981. Accordingly, on March 10, 1981, its treasurer wrote HRS's Medicaid Third Party Reimbursement Manager complaining that it had been under-reimbursed for Medicaid patients with Medicare Part B Coverage for periods beginning in 1978. He stated that the ancillary services covered by Medicare Part B were reimbursable only at 80 percent cost, and resulted in a substantial amount of the reimbursement being refunded back to the Federal program. This in turn had caused a shortfall on the hospital's part, and payment less than its Medicaid per diem rate. It accordingly requested that Medicaid return the funds necessary to bring its "reimbursement back to the level not less than the established Medicaid per diem rate of the given period." The request was authorized by Rule 10C-7.36(3), Florida Administrative Code, which allowed providers such as WGH to demonstrate "undue hardships" on the part of the provider if it submitted its Medicaid claim for payment in accordance with the forty-five day time schedule prescribed by rule, and by Florida law which authorized HRS to "make appropriate settlements" in determining third party liability in the Medicaid program. HRS did not respond to this letter. Although it did not respond to WGH's request, HRS was nevertheless fully aware of the problem by that time for it already had rule amendments in the mill which would cure the problem. Effective March 18, 1981, HRS amended its Rule 10C-7.36 to provide that providers who had claims that were crossed over to Medicaid from Medicare due to recipient eligibility in both programs were relieved from the time constraints for filing claims imposed by the rule. But because the rule operated on a prospective basis only, it did not apply to the 1979 and 1980 fiscal years. The parties have stipulated that if WGH owes HRS for excess Medicaid funds paid to WGH during January 1, 1978 through June 30, 1981, the proper amount is $4,779.90. In support of its claim against HRS, WGH produced worksheets reflecting under-reimbursement from HRS in the amounts of $41,905 and $100,542 for fiscal years 1979 and 1980, respectively, under the Medicaid program. They are derived from a log prepared by Blue Cross, the fiscal intermediary retained by HRS to conduct audits on Medicaid providers in the state. The deficiencies were caused by HRS applying full credit to the interim payments that WGH received from Medicare even though a portion of the same were subsequently returned to Medicare by WGH after the year-end audit was completed. In preparing the revenue deficiencies, WGH applied a cost-to-charge ratio which was based on the average of the five ancillary services included under Medicare Part B rather than reviewing each patient's actual billing records to determine the percentage of patients receiving a particular ancillary service. However, it was impossible to perform the latter analysis in 1979 since a "combination method" was used for the various cost centers, and the principle of consistency required that the 1980 log be prepared in the same manner as 1979.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Health and Rehabilitative Services repay Westchester General Hospital $142,447 less $4,779.90 by virtue of it having been under-reimbursed under the Medicaid program for fiscal years 1979 and 1980. DONE and ORDERED this 28th day of September, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of September, 1984.
Findings Of Fact The Home The Miami Jewish Home and Hospital for the Aged is a multi-faceted operation located on an entire city block in Miami. It provides a variety of services including an adult congregate living facility, an auditorium, a nursing home and a 32-bed hospital. Residents may come to the Home bringing with them their cash, and property and other possessions, to be sold. An account is opened for the resident from which charges made by the Home may be deducted. This fund is the Resident Asset Fund. Earings on the Resident Asset Fund are applied to reduce the Home's operating deficit. The Home provides Medicare and Medicaid services. Medicaid provides for long-term care for the indigent. About 60% of the Home's patient days were devoted to Medicaid patients in 1985. By participating in the Medicaid program, the Home is required to file cost reports each year to determine its allowable costs under Medicaid rules. The fiscal year for the nursing home runs from July 1 to June 30. The Medicaid Program Medicaid costs are shared between the federal government and the State of Florida. The Medicaid program is administered at the federal level by the Department of Health and Human Services (HHS), and at the state level by the Department of Health and Rehabilitative Services (HRS). The Health Care Financing Administration (HCFA) of HHS establishes the Medicaid costs the federal government will pay for. HCFA's Provider Reimbursement Manual, also referred to as HIM-15, contains reimbursement guidelines. Medicaid reimbursement is calculated as a rate per Medicaid patient per day. Reimbursement is provided prospctively and is based on prior cost reports, inflated forward to the period of reimbursement. The Home's unaudited cost report data is used for that purpose. In order to insure the accuracy of the Medicaid cost reports, HRS performs either test reviews or full field audits of the reports. Full audits are done either by HRS auditors or by outside auditors on contract with HRS. Here the Home's cost report was audited for HRS by Peat Marwick Mitchell & Co. HRS reviews the preliminary audit reports of its contract auditors, which can result in changes before the final audit report is issued. The 1985 Medicaid Cost Report A Medicaid cost report for the fiscal year ending June 30, 985 was filed by the Home in mid-October 1985. David Farkas, the Director of Financial Operations for the nursing home prepared that Medicaid cost report; he also had it reviewed by the accounting firm of Deloitte Haskins & Sells before it was submitted to the Department. In the Medicaid cost report, a nursing home's costs are broken down into four components: (a) those from operations; (b) those from patient care, (c) return on equity and (d) property. Costs within each of those four categories are determined and then divided by the number of patient days at the nursing home to determine a cost per patient day. The cost per patient day for the categories of operating costs and patient care are compared to a ceiling or cap that is generated through surveys performed by the Department of Health and Rehabilitative Services. Caps are adjusted for the geographical location and size of the facility. Assuming that the nursing home is at or below the cap for operations and patient care determined from the survey, the cost per patient day in each of the four components are added to form a composite reimbursement rate. Costs incurred in excess of the caps for operations and patient care are not reimbursed. An inflation factor is then added to a provider's costs because the State of Florida operates on prospective reimbursement system. Patient Trust Fund A nursing home which holds residents' funds is required by Section 400.162, Florida Statutes (1987) to provide a bond equal to twice the average monthly balance of the funds it held during the preceding year in order to ensure that the funds will be available to residents. The nursing home also has the option, in lieu of a bond, to provide a self-insurance fund protecting the monies it holds in trust. By letter dated May 31, 1985, the nursing home received approval from the Department to establish a self-insurance fund under Section 400.162 Florida Statutes. Its account was opened with Sun Bank of Miami. When the account was established the Home was required to deposit in it twice the average monthly balance of its Resident Asset Fund for the preceding year. As of June 30, 1985, the Patient Trust Fund contained $2,750,000, representing twice the $1,375,000 in resident assets held in the Resident Asset Fund. The money the Home placed in the Patient Trust Fund came from donations and from the building fund for the Home. Those funds are held in the form of treasury notes and certificates of deposit. The nursing home treated the Patient Trust Fund as part of the building fund in its 1985 Medicaid cost report. When the funds which comprise the Patient Trust Fund are placed with a trustee, they are restricted. The trustee holds the securities, and the State has the right to draw against those securities when a default occurs in the nursing home's handling of residents' funds. Only the principal amount of the Home's self-insurance fund is restricted, however. The Home itself receives the benefit of interest or dividends which accrue on the monies deposited in the self-insurance fund. Those earnings accrue to the benefit of the Home's building fund. The premium for a surety bond of the type required by Section 400.162(5)(b)1. Florida Statutes in 1985 would have cost the Home 2 percent of the amount bonded; based on 2 percent of $2,750,000, the premium would have been $55,000. This bond premium would have been treated as an allowable operating cost. The Home's operating costs exceeded the cap, however, so it actually would have received no additional reimbursement for the $55,000 bond premium if a bond had been purchased. The Audit After the nursing home submitted its 1985 Medicaid cost report, Barry Scutillo of Peat Marwick contacted the Home on behalf of HRS to audit the Home's records supporting its 1985 report. The audit resulted in a number of adjustments which were discussed with representatives of the nursing home at an exit conference. The issue of the proper treatment of the nursing home's funds deposited in the Patient Trust Fund at Sun Bank was discussed during the audit. The auditor for Peat Marwick, Mr. Scutillo, thought that the Home had accounted for the use of those funds correctly by seeking a return on equity from Medicaid for the securities in the Patient Trust Fund. The Audit Report Ultimately, Mr. Scutillo's field work was reviewed by more senior members of Peat Marwick and by HRS. An audit report was issued by Peat Marwick Mitchell & Company dated November 18, 1986 which did propose adjustments to the Home's cost report arising from the treatment of the funds which had been deposited in the Patient Trust Fund in Sun Bank. The audit report proposed to reduce nursing home's equity by $2,734,270 and to adjust the return on equity before apportionment by $108,515. The other adjustments proposed are of no consequence, because the nursing home is already at or exceeds the Medicaid cost caps, and federal regulations would prevent the Home from receiving additional reimbursement on the other adjustments even if they were made in the nursing home's favor. After the nursing home filed a request for an administrative hearing on the adjustments made in the Peat Marwick audit, representatives of the nursing home and HRS met to discuss the issues, and agreed to present a joint position paper to HCFA for a non-binding determination on the issue whether the Home was entitled to a return on equity for the funds in the Patient Trust Fund at Sun Bank. The parties agreed that each would prepare a position paper which would be forwarded to the appropriate federal officials for review. The Home's position paper was submitted to HRS but HRS failed to submit it to the federal government. Instead, HRS submitted only its own position paper. After the Home discovered this, it sent its position paper directly to the HCFA. HCFA's Response The HCFA responded, after reviewing the position of both parties, that the self-insurance fund should be excludedfrom the Home's equity capital. 1/ The HCFA believed that the fund was segregated and not used to provide patient care. 2/ The manual which HCFA relied upon, (HIM-15), contains in Section 1202.1 a definition of equity capital which includes the health care provider's investment in property, plant and equipment related to patient care, and that working capital necessary for the proper operation of patient care activities. A proprietary provider is entitled to a rate of return on its equity capital which is "a percentage equal to 1 and 1/2 times the average of the rates of interest on special issues of public debt obligations issued to the Federal Hospital Insurance Trust Fund for each of the months during the provider's reporting period." (HIM-15, Section 1206). The manual also describes items which are to be excluded from the computation of equity capital, and in Section 1218.9 states: Where a provider maintains a self- insurance program in lieu of purchasing conventional insurance, the funds in the self-insurance reserve fund must be set aside in a segregated account to cover possible losses and not used to provide patient care. Therefore, the amount deposited in the fund and the earnings on the self-insurance reserve remaining in the fund are not included in equity capital. The nursing home argues that Section 1218.9 focuses on self-insurance funds which a health care provider maintains to protect itself, and that the section is inapplicable here, because the funds deposited with Sun Bank were deposited for the protection of patients, not of the nursing home. This is unpersuasive. The nursing home itself is responsible for any defalcations in the handling of residents' assets placed with it as trustee. The Patient Trust Fund which serves as self-insurance for claims against the Home for mismanagement of the Resident Trust Funds is similar to conventional insurance.
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
