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.
Conclusions THE PARTIES resolved all disputed issues and executed a Stipulation. The parties are directed to comply with the terms of the attached Stipulation. Based on the foregoing, this file is CLOSED. DONE AND ORDERED anise 7Aay of Llu , 2014, in Tallahassee, Leon County, Florida. eS ZA K, les: Agency for Health{Care Administration Page 1 of 3 Filed March 27, 2014 4:47 PM 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. Copies furnished to: Advocates For Opportunity 5975 W. Sunrise Blvd., Suite 217 Plantation, Florida 33313-6813 Agency for Health Care Administration Douglas J. Lomonico, Assistant General Counsel, MS #3 Agency for Health Care Administration Bureau of Finance and Accounting, MS #14 Agency for Health Care Administration Bureau of Medicaid Program Integrity, MS#6 ATTN: Rick Zenuch, Bureau Chief Health Quality Assurance (E-mail) Page 2 of 3 CERTIFICATE OF SERVICE 1 HEREBY CERTIFY that a true and correct copy of the foregoing Final Order was furnished by United States Mail, interoffice mail, or email transmission to the above-referenced _——— addressees this%& Clay ot _Yre L200. . SHOOP, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, MS #3 Tallahassee, Florida 32308 Telephone No. (850)-412-3630 Fax No. (850)-921-0158 Page 3 of 3 STATE OF FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION STATE OF FLORIDA, AGENCY FOR HEALTH CARE ADMINISTRATION, Petitioner, vs. Case No. 13-3378MPI Provider No. 6711324-98 ADVOCATES FOR OPPORTUNITY, C.I. No. 13-1717-000 Respondent. JOINT STIPULATION OF DISMISSAL The AGENCY FOR HEALTH CARE ADMINISTRATION (hereinafter *AHCA™ or “Agency”), and ADVOCATES FOR OPPORTUNITY (hereinafter “PROVIDER”), by and through the undersigned, hereby stipulate and agree to the following: 1. The parties enter into this agreement for the purpose of memorializing the resolution to this matter. 2. PROVIDER is a Medicaid provider in the State of Florida, operating under Provider Number 6711324-98. 3. In its Final Audit Report, C.1. Number 13-1717-000, (the “Audit Letter" or “FAR”), dated July 30, 2013, AHCA notified PROVIDER that AHCA was seeking to recoup an alleged overpayment in the amount of $2,053.94 and audit costs estimated at the time to amount to $54.22. The FAR also sought to impose an administrative fine in the amount of $410.78 for an alleged violation of Fla, Admin. Code Rule 59G-9.070(7)(e). The total amount sought by the Agency in the FAR was $2,518.94. 4, In response, on or about August 29, 2013, PROVIDER filed with AHCA a Page | of 5 C.1. No. 13-1717-000 AHCA v. Advocates for Opportunity Joint Stipulation of Dismissal petition for a formal administrative hearing, which was forwarded to the Division of Administrative Hearings (DOAH), and therein challenged the findings contained within the FAR. 5. On or about September 18, 2013, PROVIDER and AHCA jointly filed a Motion to Relinquish Jurisdiction with DOAH in order to pursue resolution of this case short of a formal administrative proceeding. 6. On or about September 19, 2013, the Administrative Law Judge entered an order granting the parties’ Motion to Relinquish Jurisdiction and the case was referred back to AHCA. 7. Both parties stipulate and agree that as a resolution of all disputed issues in this cause, each party shall dismiss and rescind its cause of action. AHCA has agreed to dismiss its Final Audit Report, C.J. No. 13-1717-000. PROVIDER has agreed to dismiss its Petition for a Formal Administrative Hearing. 8. Both PROVIDER and AHCA agree that this joint stipulation of dismissal resolves and settles this case completely and releases both parties from any administrative or civil liabilities arising from the findings relating to the claims as referenced in audit C.1, No.13-1717- 000. 9. The parties agree to bear their own attorney’s fees and costs, if any. 10. The signatories to this Agreement, acting in a representative capacity, represent that they are duly authorized to enter into this Agreement on behalf of the respective parties. 11. All parties agree that a facsimile signature suffices for an original signature. Page 2 of 4 C.L No. 13-1717-000 AHCA v. Advocates for Opportunity Joint Stipulation of Dismissal 12. 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. 13. Both AHCA and PROVIDER expressly waive in this matter their rights to any hearing pursuant to §§120.569 or 120.57, Fla. Stat., the making of findings of fact and conclusions of law by DOATI and the Agency, and all further and other proceedings to which it may be entitled by law or rules of the Agency regarding C.I. No. 13-1717-000 and any and all issues raised herein. PROVIDER further agrees that the Agency should issue a Final Order which is consistent with the terms of this Joint Stipulation of Dismissal, and which adopts this agreement and closes this matter as to AHCA C.1. No. 13-1717-000. 14. PROVIDER does hereby discharge the State of Florida, Agency for Health Care Administration, and its agents, representatives. and attorneys of and from all claims, demands, actions, causes of action, suits, damages, losses and expenses, of any and every nature whatsoever, arising out of or in any way related to AHCA CI. No. 13-1717-000; and AHCA’s actions herein, including, but not limited to, any claims that were or may be asserted in any federal or state court or administrative forum, by or on behalf of PROVIDER. 15. This Stipulation and Agreement shall inure to the benefit of and be binding on each party’s successors, assigns, heirs, administrators, representatives and trustees. 16. All times stated herein are of the essence in this Stipulation and Agreement. 17. This Stipulation and Agreement shall be in full force and effect upon cxecution by the respective parties in counterpart. Page 3 of 4 C.I. No. 13-1717-000 AHCA v. Advocates for Opportunity Joint Stipulation of Dismissal ADVOCATES FOR OPPORTUNITY BY: NAME (Print): Deborah Wicks Kahn TITLE: Director Date:_October 24 __, 2013 AGENCY FOR HEALTH CARE ADMINISTRATION 2 727 Mahan Drive Mail Stop #3 Tallahassee, FL 32308 Page 4 of 4 oA ERIC W. MIZLER ral Inspector Ger General Counsel vate. 3/14 uf By: _| . —— Zooupiia ~LOMONICO Assistant General Counsel a _ Date: Peboy lo oo (Page 1 of °8) FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION: RICK SCOTT ELIZABETH DUDEK GOVERNOR Better Health Care for all Fioridians SECRETARY GOVERNOR Tree sere me mer ere SECRETARY FEDERAL EXPRESS MAIL No.: 8029 1875 9208 July 30, 2013 Provider No: 6711324 98 NPI No: N/A License No.: N/A ADVOCATES FOR OPPORTUNITY 5975 W. SUNRISE BLVD. STE. 217 PLANTATION, FL 33313-6813 In Reply Refer to FINAL AUDIT REPORT CI. No. 13-1717-000 Dear Provider: The Agency for Health Care Administration (Agency), Office of Inspector General, Bureau of Medicaid Program Integrity, has completed a review of claims for Medicaid reimbursement for dates of service during the period January 1, 2008 through December 31, 2011. A preliminary audit report dated April 10, 2013 was sent to you indicating that we had determined you were overpaid $2,053.94. Based upon a review of all documentation submitted, we have determined that you were overpaid $2,053.94 for services. Since no documentation was produced to refute these billings, all the claims are considered overpayments. We have determined that you were overpaid $2,053.94 for services that in whole or in part are not covered by Medicaid. A fine of $410.78 has been applied. The cost assessed for this audit is $54.22, The total amount due is $2,518.94. Be advised of the following: (1) In accordance with Sections 409.913(15), (16), and (17), Florida Statutes (F.S.), and Rule 59G-9.070, Florida Administrative Code (F.A.C.), the Agency shall apply sanctions for violations of federal and state laws, including Medicaid policy. This letter shall serve as notice of the following sanction(s): e A fine of $410.78for violation(s) of Rule Section 59G-9.070(7) (e), F.A.C. (2) Pursuant to Section 409.913(23) (a), F.S., the Agency is entitled to recover all investigative, legal, and expert witness costs. Visit AHCA online at http://ahea.myflorida.com 2727 Mahan Drive, MS# 6 Tallahassee, Florida 32308 (Page 2 of 8) Nursing Home Diversion Waiver — Fee for Service Match Page 2 The Medicaid program is authorized by Title XIX of the Social Security Act and Title 42 of the Code of Federal Regulations. The Florida Medicaid Program is authorized by Chapter 409, F.S., and Chapter Federal Regulations. The Florida Medicaid Program is authorized by Chapter 409, F.S., and Chapter 59G, F.A.C. This review and the determination of overpayment were made in accordance with the provisions of Section 409.913, F.S, In determining the appropriateness of Medicaid payment pursuant to Medicaid policy, the Medicaid program utilizes procedure codes, descriptions, policies, limitations and requirements found in the Medicaid provider handbooks and Section 409.913, F.S. In applying for Medicaid reimbursement, providers are required to follow the guidelines set forth in the applicable rules and Medicaid fee schedules, as promulgated in the Medicaid policy handbooks (in accordance with Chapter 59G, F.A.C.), billing bulletins, and the Medicaid provider agreement. Medicaid cannot pay for services that do not meet these guidelines. Below is a discussion of the particular guidelines related to the review of your claims, and an explanation of why these claims do not meet Medicaid requirements. The audit work papers are attached, listing the claims that are affected by this determination. REVIEW DETERMINATION(S) A Medicaid Provider is required to comply with Medicaid policy requirements (e.g. laws, rules, regulations, handbooks, policy), These requirements include, but are not limited to, providing goods and services in accordance with provisions of Medicaid policy and retaining medical, financial, and business records pertaining to the goods and services furnished. This review included a review of your claims reimbursed to you by Medicaid for goods and services to determine compliance with Medicaid policy. Payments for goods or services that are not documented and/or not billed in accordance to Medicaid policy are deemed to be overpayments. Our review has determined that you have failed to comply with Medicaid policy as outlined below. * Medicaid fee-for-service payments have been identified for recipients while they were enrolled in the Medicaid Nursing Home Diversion Waiver Program. Medicaid providers are required to verify Medicaid recipient eligibility prior to rendering Medicaid services. The fee-for-service payments, shown on the attached work papers, were for services that were to be covered by the recipient’s Nursing Home Diversion Waiver Provider. The total amount reimbursed to you for these fee-for-service payments has been identified as an overpayment. If you are currently involved in a bankruptcy, you should notify your attorney immediately and provide a copy of this letter for them. Please advise your attorney that we need the following information immediately: (1) the date of filing of the bankruptcy petition; (2) the case number; (3) the court name and the division in which the petition was filed (e.g., Northern District of Florida, Tallahassee Division); and, (4) the name, address, and telephone number of your attorney. If you are not in bankruptcy and you concur with our findings, remit by certified check the total amount reflected on page one, paragraph one, of this letter which includes the overpayment amount as well as any fines imposed and assessed costs. The check must be payable to the Florida Agency for Health Care Administration. Questions regarding procedures for submitting payment should be directed to Medicaid Accounts Receivable, (850) 412-3901. To ensure proper credit, be certain you legibly record on your check your Medicaid provider number and the C.I. number listed on the first page of this audit Teport. Please mail payment to: (Page 3 of 8) Nursing Home Diversion Waiver — Fee for Service Match Page 3 Medicaid Accounts Receivable - MS # 14 Agency for Health Care Administration Agency for Health Care Administration 2727 Mahan Drive Bldg. 2, Ste. 200 Tallahassee, FL 32308 Pursuant to section 409.913(25)(d), F.S., the Agency may collect money owed by all means allowable by law, including, but not limited to, exercising the option to collect money from Medicare that is payable to the provider. Pursuant to section 409.913(27), F.S., if within 30 days following this notice you have not either repaid the alleged overpayment amount or entered into a satisfactory repayment agreement with the Agency, your Medicaid reimbursements will be withheld; they will continue to be withheld, even during the pendency of an administrative hearing, until such time as the overpayment amount is satisfied. Pursuant to section 409.913(30), F.S., the Agency shall terminate your participation in the Medicaid program if you fail to repay an overpayment or enter into a satisfactory repayment agreement with the Agency, within 35 days after the date of a final order which is no longer subject to further appeal. Pursuant to sections 409.913(15)(q) and 409.913(25)(c), F.S., a provider that does not adhere to the terms of a repayment agreement is subject to termination from the Medicaid program. Finally, failure to comply with all sanctions applied or due dates may result in additional sanctions being imposed. 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. Any questions you may have about this matter should be directed to: Miranda Hunt, Investigator, Agency for Health Care Administration, Medicaid Program Integrity, 2727 Mahan Drive, Mail Stop #6, Tallahassee, Florida 32308-5403, telephone (850) 412-4600, facsimile (850) 410-1972. Sincerely, has Fante Program Administrator Office of Inspector General Medicaid Program Integrity PF/MH/SG Enclosure(s) Copies furnished to: Finance & Accounting Health Quality Assurance (Interoffice mail) (E-mail) (Page 4 of 8) Nursing Home Diversion Waiver — Fee for Service Match Page 4 NOTICE OF ADMINISTRATIVE HEARING AND MEDIATION RIGHTS You have the right to request an administrative hearing pursuant to Sections 120.569 and 120.57, Florida Statutes. If you disagree with the facts stated in the foregoing Final Audit Report (hereinafter FAR), you may request a formal administrative hearing pursuant to Section 120.57(1), Florida Statutes. If you do not dispute the facts stated in the FAR, but believe there are additional reasons to grant the relief you seek, you may request an informal administrative hearing pursuant to Section 120.57(2), Florida Statutes, Additionally, pursuant to Section 120.573, Florida Statutes, mediation may be available if you have chosen a formal administrative hearing, as discussed more fully below. The written request for an administrative hearing must conform to the requirements of either Rule 28- 106.201(2) or Rule 28-106.301(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 FAR. 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 TaHahassee, Florida 32308 Fax: (850) 921-0158 Phone: (850) 412-3630 The reauest must be legible, on 8 % by 11-inch white paper, and contain: Your name, address, telephone number, any Agency identifying number on the FAR, 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 FAR; 3. A statement of when and how you received the FAR; 4. For a request for formal hearing, a statement of all 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. For a request for informal hearing, what bases support an adjustment to the amount owed to the Agency; and 8. A demand for relief. A formal] hearing will be held if there are disputed issues of material fact. Additionally, mediation may be available in conjunction with a formal hearing. Mediation is a way to use a neutral third party to assist the parties in a legal or administrative proceeding to reach a settlement of their case. If 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 you request mediation, and the Agency agrees to it, you will be contacted by the Agency to set up a time for the mediation and to enter into a mediation agreement. If a mediation agreement is not reached within 10 days following the request for mediation, the matter will proceed without mediation. The mediation must be concluded within 60 days of having entered into the agreement, unless you and the Agency agree to a different time period. The mediation agreement between you and the Agency will include provisions for selecting the mediator, the allocation of costs and fees associated with the mediation, and the confidentiality of discussions and documents involved in the mediation. Mediators charge hourly fees that must be shared equally by you and the Agency. 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 FAR shall be conclusive and final. (Page 5 of:8) Nursing Home Diversion Waiver — Fee for Service Match Page 5 If you are in agreement with this audit and wish to make payment, please return If you are in agreement with this audit and wish to make payment, please return this form along with your check. Complete this form and send along with your check to: Agency for Health Care Administration Medicaid Accounts Receivable 2727 Mahan Drive, Mail Stop #14 Tallahassee, Florida 32308 CHECK MUST BE MADE PAYABLE TO: FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION Provider Name ADVOCATES FOR OPPORTUNITY Provider ID 6711324 98 MPI Case Number 13-1717-000 Overpayment Amount | $2,053.94 Fine Amount $410.78 Costs Assessed $54.22 Total Amount Due $2,518.94 Check Number Payment for Medicaid Program Integrity Audit (Page 6 of 8) @1OZ/SZ/TL —:a1eG Woday ELESONSEZOTZZ © S6OETS TYNOISS33OHd - EO6TSVES GH Z1069 aiaz/zz/at O10@/zZ2/0T €b 6Er" TS OFOZ/OT ONT NV WOIGIN YVAN SOGLEOSO OTOZ/tE/OT oroz/sTft ot ALEOSYSEE ‘ [ mnouydes, | eam paien de [owen sapmctadey wade | wpa welder | _prvemmesuen | S6OETS , SvNonsaiGua We | £06 Tare H ; TT ote} ‘TeEsoossz0izz Ey 6eR'tS OTOZ/60 ONE NVId TYIOGYN UNYIANH nonetaeee OTOL/OENG DOC 7 O&LISTERE ‘_Bnoury dey. | WRU palanon dey” | SUNN FPO CED [ rspvasa de | pu bukg de dl wifag wih dey | ‘Plucgpesuel | ——_——i " $6QETS TWNOISS330ud - EETISOHS 6a 21065 otoz/ters atoe/tehe “S@s9tOLzaTIzz 09°005'TS OT.02/80 _ONINVTA WOH SVAN 906T20STO. 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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.
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 Health Quest filed an application for a Certificate of Need (CON) to construct a 120-bed nursing home facility in Lee County, Florida. The application was dated June 24, 1983, was filed on June 27, 1983, and projected the project cost to be $5,557,000. The application was denied by DHRS by letter dated December 19, 1983. Based on the stipulation of the parties, the application met all of the criteria of Section 381.494(6)(c), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, except for Rule 10-5.11(21), hereinafter referred to as "the bed need methodology." The relevant service area for determination of need is the Lee County subdistrict of DHRS District B. The district poverty ratio is .68; the bed need ratio is 18.3 beds per 1000 for District B. For District 8, the projected 1987 elderly population is 213,561, and for Lee County it is 69,649. By applying the bed need ratio to the projected elderly population, a raw numeric need is established of 3,910 beds for District 8 and 1,275 beds for Lee County. In District 8 there are 3,671 beds licensed and 1,053 beds approved, for a total bed inventory of 4,724 beds. This exceeds the numeric need of 3,910 and results in no need showing. In Lee County there are 808 beds licensed and 332 beds approved, for a total bed inventory of 1,140 beds. This is less than the numeric need of 1,275 and results in a need showing for Lee County. Where there is no need in the District and need in the subdistrict, subsection 10-5.11(21)(e)(1) becomes operative and the situation is denoted as "c2". For category c2, the current utilization threshold is 90 percent occupancy in the subdistrict. Lee County, with a current utilization of 95.5 percent meets this threshold. By applying the occupancy rate of 95.5 percent to the 808 licensed beds, it is determined that the patient census for Lee County is 772. For a c2 subdistrict the prospective base rate of utilization is 80 percent. The limit for projected need for the subdistrict is the maximum number of beds for which the census would produce an occupancy rate of 80 percent. Here, patient census of 772 divided by 80 percent produces a limit of 965. The inventory of 1,140 beds in the subdistrict is greater than the limit for projected need. Approval of additional beds would be inconsistent with these calculations of need under Rule 10-5.11(21). Lee County has a low supply of nursing home beds in comparison with the remainder of District 8. District 8 has a low supply of nursing home beds in comparison with the remainder of the State of Florida. The beds currently in operation in Lee County are being fully utilized. Nursing home facilities do not operate at 100 percent capacity. For all practical purposes, a 95.5 percent occupancy rate indicates full utilization. There are currently four approved nursing home facilities in Lee County. DHRS has received no correspondence from residents of Lee County or other interested persons indicating the presence of waiting lists at existing nursing home or claiming the unavailability of accessible nursing home facilities in the service area.
Recommendation Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, DIANE K. KIESLING, held a formal hearing in this case on September 11, 1984, in Tallahassee, Florida.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner be reimbursed for fiscal year 1979 and 1980 in accordance with the foregoing adjustments. DONE and ENTERED this 17th day of December, 1982, in Tallahassee, Florida. DONALD R. ALEXANDER 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 17th day of December, 1982.
