The Issue The issue for determination in this case is whether Respondent’s application of a fair rental value system of property cost reimbursement to Petitioner under the Florida Title XIX Long-Term Care Medicaid Reimbursement Plan is appropriate.
Findings Of Fact Petitioner, CONSULTING MANAGEMENT AND EDUCATION, INC., d/b/a GULF COAST NURSING AND REHABILITATION CENTER (CME), is the licensed operator of a 103-bed nursing home in Clearwater, Florida, which is presently known as GULF COAST NURSING AND REHABILITATION CENTER (GULF COAST). CME participates in the Florida Medicaid Program as an enrolled provider. Respondent, AGENCY FOR HEALTH CARE ADMINISTRATION (AHCA), is the agency of the State of Florida authorized to implement and administer the Florida Medicaid Program, and is the successor agency to the former Department of Health and Rehabilitative Services, pursuant to Chapter 93-129, Laws of Florida. Stipulated Facts Prior to 1993, the GULF COAST nursing home facility was known as COUNTRY PLACE OF CLEARWATER (COUNTRY PLACE), and was owned and operated by the Clearwater Limited Partnership, a limited partnership which is not related to CME. In 1993 CME agreed to purchase, and did in fact purchase, COUNTRY PLACE from the Clearwater Limited Partnership. Simultaneous with the purchase of COUNTRY PLACE, CME entered into a Sale/Leaseback Agreement with LTC Properties, Inc., a Maryland real estate investment trust which engages in the financing of nursing homes. The Purchase and Sale Agreement between Clearwater Limited Partnership and CME was contingent upon the Sale/Leaseback Agreement and the proposed Lease between CME and LTC Properties, Inc. On September 1, 1993, CME simultaneously as a part of the same transaction purchased COUNTRY PLACE, conveyed the facility to LTC Properties, Inc., and leased the facility back from LTC Properties, Inc. As required, CME had notified AHCA of the proposed transaction. AHCA determined that the transaction included a change of ownership and, by lease, a change of provider. CME complied with AHCA's requirements and became the licensed operator and Medicaid provider for COUNTRY PLACE. Thereafter, CME changed the name of the facility to GULF COAST. After CME acquired the facility and became the licensed operator and Medicaid provider, AHCA continued to reimburse CME the same per diem reimbursement which had been paid to the previous provider (plus certain inflation factors) until CME filed its initial cost report, as required for new rate setting. In the normal course of business, CME in 1995 filed its initial Medicaid cost report after an initial period of actual operation by CME. Upon review of the cost report, AHCA contended that the cost report was inaccurate and engaged in certain "cost settlement" adjustments. During this review, AHCA took the position that CME's property reimbursement should be based on FRVS methodologies rather than "cost" due to the lease. In November of 1995, CME received from AHCA various documents which recalculated all components of Petitioner's Medicaid reimbursement rates for all periods subsequent to CME's acquisition of the facility. In effect, AHCA placed CME on FRVS property reimbursement. The practical effect of AHCA's action was to reduce CME's property reimbursement both retroactively and prospectively. The retroactive application would result in a liability of CME to AHCA, due to a claimed overpayment by AHCA. The prospective application would (and has) resulted in a reduction of revenues. CME is substantially affected by AHCA's proposed action and by Sections I.B., III.G.2.d.(1), V.E.1.h., and V.E.4. of the Florida Medicaid Plan. Additional Findings of Fact The Florida Medicaid Plan establishes methodologies for reimbursement of a nursing home's operating costs and patient care costs, as well as property costs. The dispute in this matter relates only to reimbursement of property costs. CME as the operator of the GULF COAST nursing home facility is entitled to reimbursement of property costs in accordance with the Florida Medicaid Plan. CME as the operator of the GULF COAST facility entered into a Florida Medicaid Program Provider Agreement, agreeing to abide by the provisions of the Florida Medicaid Plan. The Sale/Leaseback Agreement entered into by CME and LTC Properties Inc. (LTC) specifically provides for a distinct sale of the nursing home facility to LTC. LTC holds record fee title to GULF COAST. LTC, a Maryland corporation, is not related to CME, a Colorado corporation. The Florida Medicaid Plan is intended to provide reimbursement for reasonable costs incurred by economically and efficiently operated facilities. The Florida Medicaid Plan pays a single per diem rate for all levels of nursing care. After a nursing home facility's first year of operation, a cost settling process is conducted with AHCA which results in a final cost report. The final cost report serves as a baseline for reimbursement over the following years. Subsequent to the first year of operation, a facility files its cost report annually. AHCA normally adjusts a facility's reimbursement rate twice a year based upon the factors provided for in the Florida Medicaid Plan. The rate-setting process takes a provider through Section II of the Plan relating to cost finding and audits resulting in cost adjustments. CME submitted the appropriate cost reports after its first year of operation of the GULF COAST facility. Section III of the Florida Medicaid Plan specifies the areas of allowable costs. Under the Allowable Costs Section III.G.2.d.(1) in the Florida Title XIX Plan, a facility with a lease executed on or after October 1, 1985, shall be reimbursed for lease costs and other property costs under the Fair Rental Value System (FRVS). AHCA has treated all leases the same under FRVS since that time. AHCA does not distinguish between types of leases under the FRVS method. The method for the FRVS calculation is provided in Section V.E.1.a-g of the Florida Medicaid Plan. A “hold harmless” exception to application of the FRVS method is provided for at Section V.E.1.h of the Florida Medicaid Plan, and Section V.E.4 of the Plan provides that new owners shall receive the prior owner’s cost-based method when the prior owner was not on FRVS under the hold harmless provision. As a lessee and not the holder of record fee title to the facility, neither of those provisions apply to CME. At the time CME acquired the facility, there was an indication that the Sale/Leaseback transaction with LTC was between related parties, so that until the 1995 cost settlement, CME was receiving the prior owner’s cost-based property method of reimbursement. When AHCA determined that the Sale/Leaseback transaction between CME and LTC was not between related parties, AHCA set CME’s property reimbursement component under FRVS as a lessee. Property reimbursement based on the FRVS methodology does not depend on actual period property costs. Under the FRVS methodology, all leases after October 1985 are treated the same. For purposes of reimbursement, AHCA does not recognize any distinction between various types of leases. For accounting reporting purposes, the Sale/Leaseback transaction between CME and LTD is treated as a capital lease, or “virtual purchase” of the facility. This accounting treatment, however, is limited to a reporting function, with the underlying theory being merely that of providing a financing mechanism. Record fee ownership remains with LTC. CME, as the lease holder, may not encumber title. The Florida Medicaid Plan does not distinguish between a sale/leaseback transaction and other types of lease arrangements. Sections IV.D., V.E.1.h., and V.E.4., the “hold harmless” and “change of ownership” provisions which allow a new owner to receive the prior owner’s method of reimbursement if FRVS would produce a loss for the new owner, are limited within the Plan’s organizational context, and within the context of the Plan, to owner/operators of facilities, and grandfathered lessee/operators. These provisions do not apply to leases executed after October 1, 1985. Capital leases are an accounting construct for reporting purposes, which is inapplicable when the Florida Medicaid Plan specifically addresses this issue. The Florida Medicaid Plan specifically addresses the treatment of leases entered into after October 1985 and provides that reimbursement will be made pursuant to the FRVS method.
Findings Of Fact Friendly Village of Brevard, Inc. d/b/a Washington Square (herein, Washington Square) is an intermediate care facility for the mentally retarded (ICF/MR), located at 2055 North U.S. 1, in Titusville, Florida. Friendly Village of Orange, Inc., d/b/a Lake View Court (herein, Lake View Court), is also an ICF/MR located at 920 W. Kennedy Boulevard, in Eatonville, Florida. Howell Branch Court is the same type of facility, located at 3664 Howell Branch Road, Winter Park, Florida. All three facilities are operated by Developmental Services, Inc. All are certified ICF/MR's participating in the Florida Medicaid Program. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for overseeing the ICF/MR Medicaid Program. Howell Branch entered the Florida Medicaid Program in July 1982; Washington Square entered the program on January 19, 1983; and Lake View Court entered the program on February 13, 1983. Prior to beginning operations, medicaid providers were requested to submit a budgeted cost report, a projection of what the provider anticipated spending during the coming year for services to its residents. HRS received those reports and established a per diem rate based on the costs and number of patients and arrived at a per patient, per day rate. Each month as services were provided, the ICF/MR billed the state Medicaid program for the number of patient days times the per diem. During the period in question, cost settlement would occur at the conclusion of the budgeted period. The provider would file his cost report detailing what was actually spent in Medicaid-allowable costs to provide the services, HRS would compare that amount with the amount budgeted and would settle with the provider. Prior to the July 1, 1984 ICF/MR Medicaid Reimbursement Plan, if a provider were under reimbursed (incurred allowable costs in excess of reimbursement) the provider would not receive additional reimbursement in the settlement. However, if the provider received reimbursement in excess of its allowed costs, the excess had to be paid back to HRS. This is called "one-way" cost settlement. Representatives of HRS and Florida's ICF/MR industry began negotiations on a new state reimbursement plan in 1982 and 1983. The participants in the negotiations sought to remove certain cost limitations and to insure that individual facilities would receive fair reimbursement of their Medicaid- allowable costs. The negotiations resulted in the Title XIX ICF/MR Reimbursement Plan dated July 1, 1984 (the 1984 Plan). The 1984 Plan was adopted as a rule by incorporation, in Rule 10C- 7.49(4)(a)2. Florida Administrative Code. The 1984 Plan contains a two-way cost settlement method to replace the one-way settlement method described above. This means that under the 1984 Plan, providers could receive additional reimbursement during settlement if their actual allowable costs exceeded reimbursement under the per diem rate. Washington Square and Lake View Court filed budgeted cost reports for the fiscal year ending February 19, 1984. HRS performed audits of these reports in 1985. The audits were issued in April and May 1988. The audits did not apply the two-way cost settlement method described in the 1984 Plan. Petitioners claim that a proper interpretation of the 1984 Plan is that two-way cost settlement is retroactive to January 1983 for new providers entering the program after January 1, 1983. That claim is based on the following language in the 1984 Plan and subsequent 1985 Plan: For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12 month period submitted by the provider. (Petitioner's Exhibit 2, the 1984 Plan, pp 29-30. For a new provider entering the program subsequent to January 1, 1983, HRS will establish the cost basis for calculation of prospective rates using the first acceptable historical cost report covering at least a 12-month period submitted by the provider. Overpayment as a result of the difference between the approved budgeted interim rate and actual costs of the budgeted item shall be refunded to HRS. Underpayment as a result of the difference between the budgeted interim rate and actual allowable costs shall be refunded to the provider. The basis for calculating prospective rates will be the first year settled cost report. (Petitioner's Exhibit 3, the 1985 Plan, p. 31.) Neither the above, nor any other language in the plans indicate that the 1984 Plan would become effective for any providers prior to July 1, 1984. HRS intended that the plan be prospectively applied. Francis "Skip" Martin was employed in HRS' Medicaid Cost Reimbursement Planning and Analysis Unit and was involved in negotiating and drafting the 1984 plan for the agency. He remembers no discussions of retroactive application of the plan. Nor could Petitioners' witnesses expressly recall that the negotiations included retroactive application of the "two- way" settlement method. Instead, they were aware that the department was working with them to establish a more acceptable reimbursement plan and they assumed that retroactivity was part of the plan. (transcript pp 95-98, 126.) Skip Martin explained that the January 1, 1983 date was arrived at by working backwards from July 1, 1984, the date of the plan. The intent was to establish a cutoff point for providers entering the program as to whether they would be considered under prospective rates or be given an interim rate and still be considered a new provider when the plan was implemented. The January 1, 1983, cutoff allowed for a year's worth of reporting history plus sufficient time for the provider to compile his cost report and submit it to the department, and time for the department to have received the cost report and have it included in the calculations that would be used on July 1, 1984. ICF/MR's entering the program after January 1, 1983, would not have had sufficient cost history for rate setting, and as "new providers" would come under a separate rate setting provisions in the plan. Carlton Dyke Snipes has worked in HRS' Medicaid Cost Reimbursement Analysis Section since 1983, and in November 1985, he became the section Administrator. He explained that the language cited above from page 31 of the 1985 Plan was a clarification of the intent that the two-way cost settlement implemented on July 1, 1984, apply to new providers, as well as existing providers. The method had not been expressly addressed in the July 1, 1984 plan in that section relating to new providers. As an alternative to retroactive application of the two-way cost settlement provision in the July 1, 1984 Plan, Petitioners contend that they should be allowed a waiver of class ceilings as provided in the plan in effect in 1983. This issue was raised in this proceeding for the first time at the final hearing. The 1983 ICF/MR Medicaid Reimbursement Plan includes this provision regarding waivers: The class ceiling under paragraph c above may be exceeded provided; the period of the limits shall not exceed six (6) months. The HCFA Regional Office will be notified in writing at least 10 days in advance in all situations to which this exception is to be applied and will be advised of the rationale for the decision, the financial impact, including the proposed rate and the number of facilities and patients involved. (Petitioners' Exhibit #7, p. 15) In one case discussed at hearing, HRS granted an exemption under this provision. The facility was an ICF/MR cluster facility, Sunrise Cape Coral. The application by the facility was cleared in advance by the federal agency, Health Care Financing Administration (HCFA). The 1983 Plan is no longer in effect and was superceded by the July 1, 1984 Plan. Petitioners did not apply for a waiver when the 1983 Plan was in effect. Instead, they claim that they did not know such an opportunity existed until discovery for this proceeding uncovered the Sunrise case. The issue with regard to Petitioner's Howell Branch facility differs from the audit issues affecting Washington Square and Lake View Court addressed above. HRS' audit of Howell Branch in 1988 includes an overpayment to the facility of approximately $115,000.00. Petitioners claim that Howell Branch should not have to reimburse those funds because during a portion of the eighteen-month cost reporting period Howell Branch was underpaid for an amount which should more than offset the overpayment. According to the provisions of the reimbursement plan which was in effect during the relevant period, July 1982 (when Howell Branch opened) through December 1983, HRS cost settled based on the lesser of: class ceilings in effect during the period, actual costs, or the budgeted interim rate. Class ceilings are established by HRS for various levels of care required by ICF/MR residents. These ceilings are based on cost reports received by HRS as of each June 30 and go into effect on October 1st of each year. Howell Branch, therefore, experienced three class ceilings during its July 1982 through December 1982 reporting period. HRS applied those three cost ceiling periods to Howell Branch, rather than monthly periods, as contended by Petitioners. As described by Carlton Dyke Snipes, MRS took the average cost determined by an audit report and every rate than had been in effect during that cost reporting period and, for every period that rate was in effect, applied the lesser of the average audited cost or the budgeted rate that was paid or the ceiling that was in effect and reprocessed the claims that had been made. This resulted in the $115,000.00 overpayment. If MRS had used average costs and average rates for the entire eighteen- month period, as advocated by Petitioners, the result would have been that ceilings would be exceeded during a portion of the eighteen month period.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order denying the petitions of Washington Square, Lake View Court and Howell Branch. DONE and ENTERED this 14th day of June, 1989 in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-2939 The following constitute specific rulings on the findings of fact proposed by the parties: Petitioners' Proposed Findings of Fact 1 and 2. Included in Preliminary Statement. 3 through 6. Adopted in Paragraph 1. 7. Adopted in Paragraph 2. 8 through 10. Adopted in Paragraph 3. 11 and 12. Adopted in Paragraph 5. 13 and 14. Adopted in Paragraph 6. Adopted in Paragraph 7. Rejected as unnecessary. 17 and 18. Adopted in Paragraphs 8 and 9, except for the implication that two- way reimbursement applied retroactively to January 1, 1983. Adopted in part in Paragraph 9, but the retroactive application of the methodology is rejected as inconsistent with the evidence. Adopted in Paragraph 11. Adopted in part in Paragraph 10, the statement of entitlement to two-way settlement is rejected as inconsistent with the evidence. Adopted in Paragraph 15. Rejected as argument. Adopted in part in Paragraph 16, otherwise rejected as argument. Rejected as inconsistent with the evidence. Rejected as contrary to the evidence. HAS' method of cost settlement was not inappropriate. Adopted in substances in Paragraph 19. Rejected as unnecessary 29 and 30. Rejected as argument and unnecessary. Respondent's Proposed Findings of Fact Adopted in Paragraph 1. Adopted in Paragraphs 2 and 3 Adopted in Paragraph 8. 4 and 5. Adopted in Paragraphs 4 and 5. Adopted in Paragraph 6. Adopted in Paragraph 10. Adopted in Paragraphs 10 and 11. Adopted in Paragraph 17. COPIES FURNISHED: Michael Bittman, and Karen L. Goldsmith P.O. Box 1980 Orlando, Florida 32802 Carl Bruce Morstadt and Kenneth Muszynski 1323 Winewood Boulevard, Bldg. One Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 R.S. Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue The 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
The Issue Whether the Department of Health and Rehabilitative Services improperly determined the Petitioners' rate of Medicaid reimbursement for the period January 1, 1990, through June 30, 1990?
Findings Of Fact The Emergency Rule and the Permanent Rule have been determined to be valid in a Final Order entered simultaneously with this Recommended Order. The Department's action in freezing the Medicaid reimbursement rate of the Petitioners in these cases was taken pursuant to the Emergency Rule and the Permanent Rule.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a Final Order in these cases dismissing the Petitioners' amended petitions. DONE and ENTERED this 26 day of May, 1992, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this day of May, 1992. APPENDIX Case Numbers 91-4893, 91-4894, 91-4895, 91-4914, 91-4929, 91-5837 and 91-6191 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioners' Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1 and 4. 2 5-6. 3 13. 4 7. 5 3 and 13-14. 6 15. 7 17-19. 8 20. 9 21. 10 22. 11 23. 12 8. 13 12. 14 11. 15 24. 16 25-27. 17 28-29. 18 29. 19 30-32. 20 34-37. See 39. The last three sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment. 39. The last two sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment. 23 40-41. 24 43. 25 45. 26 46. 27 47. 28 48. The last two sentences are argument. 29 49. 30 42. 31 29 and 32. The weight of the evidence failed to prove the Department's motive for providing assurances to HCFA were anything other than to meet federal requirements. 32 28. 33 55. 34 34-35. See 59-60 and 63. The detailed findings of fact concerning the nature of the Department's inflationary analysis are not necessary. HCFA rejected this analysis and based its decision on other information provided by the Department. Additionally, the determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment. 35 See 60-63. 36 52-54. 37 54. 38 55 and hereby accepted. 39 59 and hereby accepted. 40 See 60-65. HCFA did not "reject" the Department's proposed plan amendment. 41 See 63. 42-43 See 60-66. 44-46, 50-54 Although the proposed findings of fact concerning what the Department told HCFA are generally correct, these proposed findings of fact are not relevant to this proceeding. As previously stated, the determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment. 47 Hereby accepted. 48-49 Hereby accepted except for the proposed findings that the Department "misled", "misrepresented" or provided "inaccurate and misleading information." The last sentence of proposed finding of fact 49 is not relevant. 55 67. 56 Hereby accepted. 57 Not relevant. 58 69. 59 70. 60 71. 61 50 and 73. The Department's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1. 2 4. 3 5. 4 6. 5 3 and 13-14. 6 15. 7 17-19. 8 20. 9 21. 10 22. 11 23. 12 8. 13 11. 14 24. 15 25-26. 16 Hereby accepted. 17 27 and 29-32. 18 34-37. 19 39-41. 20 41. 21 43. 22 33. 23 42. 24 52-53 and 58. 25 54. 26 55. 27 56. 28 57. 29 60-65. 30 67. 31 68. 32 69. 33 70. 34 71. 35 50 and 73. 36 72. 37 73. 38 Hereby accepted. COPIES FURNISHED: Sam Power Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 John Slye General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Thomas C. Fox, Esquire Michael D. Smith, Esquire 1200 18th Street, N.W. Washington, D.C. 20036 Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302 W. David Watkins, Esquire Post Office Box 6507 Tallahassee, Florida 32314-6507 David Pius Medicaid Counsel Department of Health and Rehabilitative Services 1317 Winewood Boulevard Building 6, Room 230 Tallahassee, Florida 32399-0700
Findings Of Fact Background Petitioner, United Health, Inc. (United), is the owner and operator of approximately one hundred and twenty-three nursing homes in thirteen states. In the State of Florida, it owns and operates sixteen nursing homes and one intermediate care facility for the mentally retarded that are licensed by respondent, Department of Health and Rehabilitative Services (HRS). At issue in this proceeding are the cost reports and supplemental schedules filed by thirteen nursing home facilities.1 In accordance with Medicaid guidelines, petitioner was required to annually submit cost reports to HRS reflecting its allowable costs in providing Medicaid services to its patients. HRS is designated as the state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act. In order to be reimbursed for said costs, the facility was required to show that the costs were in conformity with Federal and State Medicaid reimbursement principles. Those principles are embodied in the Long Term Care Reimbursement Plan (Plan) adopted by the State.2 This document contains the reimbursement methodology to be used for nursing homes who provide Medicaid services. In addition, providers must comply with Health Insurance Manual 15 (HIM-15), a compendium of federal cost reimbursement guidelines utilized by HRS, and generally accepted accounting principles. By letter dated September 9, 1985 petitioner requested that HRS adjust its July 1, 1985 reimbursement rates for the thirteen facilities to reflect certain annualized costs incurred during the preceding fiscal year ending December 31, 1984. According to the letter, the adjustment was appropriate under Section V.B.I.b. of the September 1, 1984 Plan. On October 21, 1985, an HRS Medicaid cost reimbursement analyst issued a letter denying the request on the following grounds: Our review of the information submitted with the fiscal year end 12/31/84 cost reports revealed that the annualized operating and patient care costs were not documented to be new and expanded services or related to licensure and certification requirements. The annualized property cost appeared to be 1 2 various purchases, repairs and maintenance and was not documented to be capital improvements. The denial prompted the instant proceeding. B. Reimbursement Principles In General Under the Medicaid reimbursement plan adopted for use in Florida, nursing homes are reimbursed by HRS on a prospective basis for their allowable costs incurred in providing Medicaid services. This method is commonly referred to as the prospective plan, and has been in use since 1977. Under this concept, a nursing home files with HRS, within ninety days after the close of its fiscal year, a cost report reflecting its actual costs for the immediate preceding fiscal year. Within the next ninety days, the nursing home is given a per diem reimbursement rate (or ceiling) to be used during the following twelve months.3 For example, if a provider's fiscal year ended December 31, 1984, its cost report would be due by March 31, 1985. HRS would then provide estimated reimbursement rates to be used during the period from July 1, 1985 through June 30, 1986. As can be seen, there is a time lag between the end of a cost reporting year and the provider's receiving the new rate. The new reimbursement rate is based upon the provider's actual costs in the preceding fiscal year (reporting period) adjusted upward by an inflation factor that is intended to compensate the provider for cost increases caused by inflation. The prospective plan enables a provider to know in advance what rates it will be paid for Medicaid services during that year rather than being repaid on a retroactive basis. If a provider operates efficiently at a level below the ceiling, it is "rewarded" being allowed to keep a portion of the difference. Conversely, if it exceeds the caps, it is penalized to the extent that it receives only the rates previously authorized by HRS, and must absorb the shortfall. At the same time, it should be noted that the reimbursement rate is not intended to cover all costs incurred by a provider, but only those that are reasonable and necessary in an efficiently operated facility. These unreimbursed costs are covered through other provider resources, or by a future cut in services. When the events herein occurred, there were two types of adjustments allowed under the prospective plan. The first adjustment is the inflation factor, and as noted above, it 3 authorizes the provider to adjust certain reported costs by the projected rate of inflation to offset anticipated cost increases due to inflation. However, because the prospective plan (and the inflation factor) ignores other cost increases that occur during the given year, HRS devised a second type of adjustment for providers to use. This adjustment is known as the gross-up provision, and allows the annualization of certain costs incurred by a provider during a portion of the reporting period. The concept itself .s embodied in subparagraph B.1.b. of Part V of the September 1, 1984 Plan. Its use may be illustrated with the following example. A provider constructs an addition to its facility with an in-service date at the end of the sixth month of the reporting period. By reflecting only the depreciation associated with the addition during the last six months of the reporting period, the facility understates its actual costs, and is reimbursed for only one-half of the facility's depreciation during the following year. Under the gross-up provision the provider grosses up, or annualizes, the reported cost to give it a full year's effect, thereby ensuring that the next year's rates will be more realistic. Although the provision has application to this proceeding, over objection by the nursing home industry it was eliminated from the Plan on October 1, 1985 and is no longer available to providers. At hearing HRS contended the provision should have been eliminated in 1984, but through oversight remained in effect until 1985. However this contention is rejected as not being credible, and is contrary to the greater weight of evidence. Finally, neither party could recall if a request under this provision had ever been filed. They do acknowledge that HRS has never approved such a request during the more than two years when the provision was operative. In addition to the gross-up and inflation provisions, there exists an alternative means for additional rate reimbursement through what is known as the interim rate provision. Under this provision, a provider can request an interim rate increase from HRS during the period when its prospective rates are in effect to cover major unexpected costs. Assuming a request is valid and substantiated, a provider is eligible for immediate cash relief dating back to the date of the actual expense. However, because of HRS' concern that this provision was being "abused", only those costs which exceed $5,000 and cause a change of 1% or more in the total prospective per diem rate are now eligible for reimbursement. These monetary thresholds on interim rate requests became effective September 1, 1984. When these higher thresholds were imposed, HRS made representations to the nursing home industry that a provider could still utilize the gross-up provision to cover other unexpected costs. Finally, it is noted that unlike the prospective rate, an interim rate is cost settled. This means the provider's cost reports are later audited, and excess reimbursements must be repaid to HRS. This differs from the prospective plan where any "overpayments" are not subject to recoupment by HRS. Even so, a provider is limited by the reasonableness and prudent buyer concepts which serve as a check on potential abuse by a provider. The Gross-Up Feature In its relevant form, the gross-up provision was first adopted for use by HRS in its April 1, 1983 Plan.4 It required HRS to: Review and adjust each provider's cost report referred to in A. (1.) as follows: * * * b. to compensate for new and expanded or discontinued services, licensure and certification requirements, and capital improvements which occurred during the reporting year but were not included or totally accounted for in the cost report. This language was incorporated with only minor changes into the September 1, 1984 Plan and is applicable to the cost reports in issue. In its 1984 form, the provision required HRS to review and adjust each provider's cost report as follows: b. To compensate for new and expanded or discontinued services, licensure and certification requirements, and capital improvements not included or totally accounted for in the reporting year. For additional costs to be provided, the provider must furnish adequate supporting documentation. 4 Accordingly, if a cost fits within one of the three categories, HRS is required to adjust a provider's report to compensate it for the expenditure. The April 1, 1983 Plan was negotiated by the nursing home industry and HRS representatives at a meeting in Gainesville, Florida. For this reason, it is commonly referred to as the Gainesville Plan. Through testimony of negotiators who participated at the meeting, it was established that the Plan had three objectives: to give proper payment to nursing homes; to meet state and federal regulations; and to help upgrade care in the nursing homes. At the same time, the negotiators recognized that a prospective plan based on inFla.ion alone overlooked other cost increases that occurred during a given year. Therefore, the gross-up provision was added to the Plan to ensure that providers could estimate (and recoup) their future costs in as accurate a manner as possible, and to bring the plan into compliance with federal guidelines. It was also designed to ensure that a provider did not have to wait an extraordinarily long time for expenses to be recognized. In addition, HRS was hopeful that the gross-up provision would minimize the providers' reliance upon the interim rate feature (which was intended to cover only major items) thereby reducing the agency's overall workload. Indeed, the interim and gross-up features were intended to complement each other, in that one provided immediate relief on major unexpected items while the other provided a means to adjust partial year costs incurred during the reporting period. The implementation of thresholds on the interim rate provision in September, 1984 increased the importance of the gross-up provision to handle smaller items. Therefore, HRS' contention that the interim and gross-up provisions are in conflict is hereby rejected. In order for a cost to be eligible for annualization, it must fall within one of three categories: new or expanded service, a capital improvement, or a cost to meet HRS' licensure and certification requirements. The parties have stipulated that HRS' denial of United's request was based solely upon HRS' perception that the costs did not fall within any of the three categories. The three types of costs within the feature are not defined in the Plan. Testimony from the Plan's negotiators established that the language in the gross-up feature was meant to be construed broadly and to encompass many costs. For this reason, no limitations were written into the Plan. Even so, the provision was not intended to give carte blanche authority to the providers to annualize every partial cost. There is conflicting testimony regarding the meaning of the term "capital improvement" and what expenditures are included within this category. However, Sections 108.1 and 108.2 of HIM-15, of which the undersigned has taken official notice, define a capital item as follows: If a depreciable asset has, at the time of its acquisition, an estimated useful life of at least 2 years and a historical cost of at least $500, its cost must be capitalized, and written off ratably over the estimated useful life of the asset. . . * * * Betterments and improvements extend the life or increase the productivity of an asset as opposed to repairs and maintenance which either restore the asset to, or maintain it at, its normal or expected service life. Repairs and maintenance costs are always allowed in the current accounting period. With respect to the costs of betterments and improvements, the guidelines established in Section 108.1 must be followed, i.e., if the cost of a betterment or improvement to an asset is $500 or more and the estimated useful life of the asset is extended beyond its original estimated life by at least 2 years, or if the productivity of the asset is increased significantly over its original productivity, then the cost must be capitalized. The above guidelines are more credible and persuasive than the limited definition of capital item enunciated at final hearing by HRS personnel. Therefore, it is found that the HIM-15 definition is applicable to the gross-up feature and will be used to determine the validity of petitioner's claim to gross up certain expenditures. There is also conflicting testimony as to what the term "new and expanded or discontinued services" includes. Petitioner construes this item to include any costs that increase the volume of services to a resident. Therefore, petitioner posits that an increase in staffing which likewise increases services to residents is subject to annualization. Conversely, HRS construes the term to cover any costs for new or expanded services that enable a facility to provide patients with services not previously provided or to expand an existing service to more patients in the facility. The latter definition is more credible and persuasive and will be used by the undersigned in evaluating petitioner's request. Finally, petitioner interprets the term "licensure and certification requirements" to cover any costs incurred to meet staffing requirements that are required by HRS rules. According to petitioner, the category would include expenditures that are made for so-called preventive maintenance purposes and to avoid HRS sanctions. On the other hand, HRS construes the language to cover costs incurred by a provider to either meet a new licensure and certification requirement, or to correct a cited deficiency. It also points out that salary increases were intended to be covered by the inflation factor rather than through this feature of the plan. This construction of the term is more reasonable, and is hereby accepted as being the more credible and persuasive. Petitioner's Request Petitioner's fiscal year ends on December 31. According to HRS requirements its cost reports must be filed by the following March 31. In accordance with that requirement petitioner timely filed its December 31, 1984 cost reports for the thirteen facilities on or before March 31, 1985. The reports have been received into evidence as petitioner's composite exhibit 3. Attached to the reports were schedules supporting a request for gross-up of certain capital items, additions and deletions of various personnel, and union salary increases that exceeded the inflation rate. The parties have not identified the actual dollar value of the items since only the concepts are in issue. In preparing the supporting schedules, United's assistant director of research reviewed all so-called capital items purchased by the thirteen facilities during the fiscal year, and determined which were purchased after the beginning of the year.5 He then calculated the depreciation on those 5 expenditures made after the beginning of the year and has included those amounts on the supporting schedules to be annualized. Consistent with the definition contained in Sections 108.1 and 108.2 of HIM-15, those items that are in excess of $500 (after annualization), that extend the useful life of the asset for two years or more, or that increase or extend the productivity of the asset are subject to annualization. It should be noted that repairs and maintenance items, as defined in Sections 108.1 and 108.2, are excluded from this category. Petitioner next seeks to adjust its rates by grossing up the net increase in costs associated with additions and deletions of various staff during the reporting period. Any net staffing additions that provide patients with services not previously provided or that expand an existing service to more patients in a given facility are properly subject to the gross- up provision. All others should be denied. Petitioner also contends that these costs should be considered as a licensure and certification requirement since they satisfy staffing requirements under HRS rules. To the extent the filling of old positions occurred, such expenditures are appropriately covered by the gross-up provision. The remainder do not fall within the purview of the provision. Finally, petitioner seeks to adjust its rates to cover all salary increases over and above the inflation factor that were awarded to union employees pursuant to its union contract. Under petitioner's theory, if such costs were not paid, United stood to lose staff through a strike which in turn could result in licensure and certification problems. But these concerns are speculative in nature, and such an interpretation would result in automatic approval of any salary increase called for by a union contract, no matter how unreasonable it might be. Since the expenditures do not meet the previously cited criteria, they must be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That petitioner's request to have its July 1, 1985 reimbursement rates adjusted for thirteen facilities to reflect annualized costs as submitted on supplemental schedules with its 1984 cost reports be approved in part, as set forth in the conclusions of law portion of this order. The remaining part of its request should be DENIED. DONE AND ORDERED this 31st day of October, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of October, 1986.
The Issue The issue is whether Respondent should grant or deny a Petition for Resolution of Reimbursement Dispute filed by a health care provider or its assignee. The dispute concerns the proper reimbursement amount for 60 units of meloxicam 15 mg.
Findings Of Fact J. G. is 30 years old and suffered a compensable injury on September 14, 2009. On December 14, 2011, J. G. visited the Advanced Pain Management office of Dr. Daitch, who dispensed to the employee 60 units of meloxicam 15 mg. Meloxicam is a prescription pain medication. Dr. Daitch obtains certain prescription drugs from Unit Dose Services for dispensing in his office. Although Dr. Daitch sees patients who are not covered by Workers' Compensation, he dispenses prescription drugs in his office only to patients covered by Workers' Compensation and has been doing so for four years. Dr. Daitch testified that he was unaware of the pricing of the prescription drugs that he dispenses in his office, and he was unaware of any contract that, in this case, might require him or his assignee, as described in the next paragraph, to discount this reimbursement claim. But he testified that the dispensing of prescription drugs through retail chains such as Walgreens and CVS is "very profitable." (Tr. of deposition of Dr. Daitch 16). All of this testimony is credited. However, it is not unusual for providers to be unaware of in-network or preferred-provider contracts when that they dispense prescription drugs to injured employees. As a certified health care provider, Dr. Daitch was presumptively aware that, whenever he dispenses prescription drugs, his reimbursement may be limited to what is authorized for an in- network or preferred provider.3/ As he did in this case, Dr. Daitch routinely assigns his claims for reimbursement for dispensed prescription drugs. Dr. Daitch testified that he or his practice has a contract with Automated Healthcare Solutions, but the assignee in this case is Prescription Partners--either as a result of a reassignment or Dr. Daitch's misunderstanding of the identity of the billing contractor. For the December 14 office visit, Dr. Daitch completed a CMS-1500, which includes a National Drug Code (NDC) for the meloxicam that he dispensed, a note that he dispensed 60 units of the drug, a reimbursement claim of $437.48 for the drug, and a reimbursement claim of $4.18 as a dispensing fee. Appearing in the upper right-hand corner of the CMS-1500 is the name, "AmTrust of North America," suggesting that Dr. Daitch or Prescription Partners believed that AmTrust North America, Inc., or AmTrust North America of Florida, Inc., was the carrier or claims administrator. The CMS-1500 states that Prescription Partners is the "billing provider" and that Prescription Partners submitted the CMS-1500 to AmTrust North America. The carrier is Petitioner. AmTrust North America, Inc., is a multistate insurance agency, although it is not licensed in Florida. Formerly known as Associated Industries Insurance Service, Inc., AmTrust North America of Florida, Inc., is an insurance agency licensed in Florida and serves as a third-party administrator of claims on policies issued by Petitioner and other carriers, including the claim involved in this case. Each of these corporations is owned by AmTrust Financial Services, Inc., although AmTrust North America of Florida, Inc., was principally owned, as of July 1, 2009, by AmTrust North America, Inc. By EOBR received on January 11, 2012, Petitioner notified Prescription Partners that Petitioner was disallowing the dispensing fee and adjusting the reimbursement amount for the 60 units of meloxicam to $385.48. The explanation for both actions is: "Paid; no modification to the information provided on the medical bill; payment made pursuant to written contractual arrangement (network or PPO named required): ."4/ There is no network or PPO identified in the space after the final colon. The EOBR advises that reconsiderations or appeals must be submitted to Petitioner and Fair Pay SOLUTIONS, if Prescription Partners had any questions about the "analysis." Prescription Partners had questions about the analysis, but addressed them to OMS by filing the Petition. The Petition, which was timely filed, shows that the petitioner is Dr. Daitch, but that the Petition is presented by Prescription Partners, as an entity acting on behalf of the health care provider. The Petition shows copies were mailed to "AmTrust" and Petitioner. The Petition states the gist of the dispute as follows: "Carrier is paying under the AWP not according to the FL fee schedule. This claim is being processed incorrectly." The Petition states that the amount in dispute is $56.18. Attached to the Petition are four documents: the above-described CMS-1500 and EOBR, a Calculation Sheet that renders the above-described details on the amounts in dispute, and a document identified as "Detailed Product Information" from the "Red Book." The "RedBook" is the Drug Topics Red Book™, which is a price index published by Medical Economics Company, Inc. The Red Book™ provides an AWP, by NDC, for all prescription drugs, including repackaged drugs. The "Detailed Product Information," which is from an online version of the Red Book™, identifies the same UDC referenced in the above-described CMS-1500 and indicates that the drug is a repackaged generic. The "Detailed Product Information" also contains "current pricing information" for meloxicam 15 mg. The "current pricing information" shows that the AWP is $218.74 and "HCFA"-- evidently referring to Medicare reimbursement through the Health Care Financing Administration (HCFA)--is $6.28. These prices appear to apply to 30 units. The AWP is a price that is designated by the manufacturer or repackager and reported to the Red Book™ publisher. Contrary to its name, the AWP does not necessarily correspond to the mean price of all of the arm's length, wholesale transactions in the drug over a period of time; the AWP more closely resembles the "undiscounted sticker price" assigned to a drug by its manufacturer or repackager.5/ Unlike AWP, repackaging is self-explanatory. A repackager purchases a drug from its manufacturer in bulk--say, 1000 units--and repackages the drug in small quantities--say, 30 units--for dispensing by physicians and other appropriate health care providers. The repackager provides a package and label and obtains a unique UDC for the repackaged drug. By obtaining a unique UDC for the repackaged drug, the repackager is able to set a different AWP from the AWP assigned the drug by its manufacturer. In general, the AWPs assigned by repackagers are 80%-200% higher than the AWPs assigned by manufacturers. As between manufacturers and repackagers of meloxicam at the time in question, the AWP for 60 units ranged from about $290 for manufacturers to about $450 for repackagers. At the time in question, meloxicam was a generic. Now a MAC drug, which means it carries a "maximum allowable cost" because it is now manufactured by several manufacturers, meloxicam presently supports an AWP of $60.91 for 60 units. Petitioner timely filed a carrier response to the Petition. The response states that the carrier has contracted with Carlisle for the reimbursement of prescription drugs at reduced prices. The response states that neither Prescription Partners nor Dr. Daitch is a party to the contract, and they must accept the reduced reimbursement rate. The response includes a copy of a written contract between Carlisle and AmTrust North America (Written Contract); a letter dated January 12, 2012, from the president of Carlisle to the Claims Manager of AmTrust North America of Florida, Inc.; an invoice showing the reduced reimbursements for the subject transaction; and Informational Bulletin DFS-02-2009 dated August 12, 2009. Signed by both parties on August 2, 2012, and, from all appearances, taking effect on that date, the Written Contract is only 22 lines long, exclusive of headings. Its provisions are as follows: AmTrust North America will "exclusively" use Carlisle's "PBM" services. Carlisle will provide PBM services for AmTrust North America throughout the United States. Carlisle's PBM program includes over 64,000 pharmacies, including all of the major retail chains--Walgreens, CVS, Target, and Rite-Aid. If there are no contracted pharmacies that are "reasonably accessible" to an employee, the employee may use an out-of-network pharmacy. Carlisle will submit all pharmacy invoices on a form acceptable to AmTrust North America. The "terms" are "net-30, or as mandated by the appropriate state law." Carlisle will maintain pharmacy records for three years from the last activity. "Insurance. See attachment." (The versions of the contract submitted into evidence have no attachments.) g. The agreement is for one year, after which the agreement automatically renews unless either party provides written notice of termination at least 90 days prior to the renewal date. Carlisle is not an affiliate of AmTrust North America, Inc. Carlisle has a contract with an entity that has contracts with large chains of retail pharmacies. This networking-forming entity obtains discounts from AWPs for various classes of prescription drugs: brand name drugs, generic drugs, and MAC drugs. Pursuant to these contractual arrangements, Carlisle obtains for AmTrust North America, Inc., and its affiliates discounts of 12% off AWP for generic drugs. Eric Lloyd, OMS Program Administrator, testified that this is a relatively low percentage among in-network or preferred providers; this testimony is credited. The January 12, 2012, letter from Carlisle to AmTrust North America of Florida states that AmTrust North America of Florida has the right, under the Written Contract, to reimburse an out-of-network or nonpreferred provider at the same rate that applies to an in-network or preferred provider. The letter states that the pricing worksheet that Carlisle supplies to AmTrust North America of Florida, Inc., shows the reimbursement amount for prescription drugs obtained through in-network or preferred-provider pharmacies. Carlisle uses Medi-Span, which provides AWPs by NDCs like the Red Book™, as the source of the AWP for every prescription drug, to which Carlisle then applies the appropriate discount, depending on whether the drug is a brand name, generic, or MAC drug. Respondent's Information Bulletin DVS-02-2009, which was issued on August 12, 2009, is irrelevant to this case.6/ OMS resolved this reimbursement dispute in favor of Prescription Partners. In its Reimbursement Dispute Determination, OMS cites two grounds for this proposed agency action: 1) the Written Contract is between Carlisle and AmTrust North America, not Petitioner, and 2) the Written Contract provides no drug pricing methodology by which OMS could validate the accuracy of the discount that Petitioner applied to the AWP. The Reimbursement Dispute Determination mentions the Florida Workers' Compensation Health Care Provider Reimbursement Manual, 2008 edition (Provider Manual), which is incorporated by reference at Florida Administrative Code Rule 69L-7.020. Provider Manual II.F.1.b.(1) requires carriers to reimburse certified Florida health care providers pursuant to the reimbursement guidelines contained in the manual: the reimbursement shall be the "agreed upon contract price (whether agreed upon prior to rendering service(s) or upon submission of bill) or the maximum reimbursement allowance (MRA) in the appropriate schedule pursuant to section 440.13(12)(a), F.S." Provider Manual V.A recognizes that prescription drugs may be dispensed by pharmacists or dispensing physicians. Provider Manual V.A.5.a. limits reimbursement to the pharmacist or dispensing practitioner, pursuant to the formula contained in the manual. For prescription drugs, Provider Manual V.A.5.b states that reimbursement shall be by the "pharmaceutical reimbursement formula," which is either the AWP plus a $4.18 dispensing fee or the "contracted reimbursement amount determined in accordance with the contractual arrangement between the provider and insurer." The Provider Manual does not address the dispensing of prescription drugs by an out-of- network or nonpreferred provider. Alan McClain, Jr., Carlisle executive vice-president, negotiated the Written Contract. In testimony, Mr. McClain identified a few contractual provisions that are not contained in the Written Contract, such as that the discounts are confidential, but that AmTrust North America could disclose them if it wished, and that the affiliates of AmTrust North America, including Petitioner, are parties to the Written Contract. Mr. McClain also testified that the three levels of discounts are primarily derived from course of dealing, rather than a formal schedule to the Written Contract. Mr. McClain's testimony is credited. Nothing in this record suggests any discord between the AmTrust family of corporations, on the one hand, and Carlisle and its direct and indirect contractual counterparties described above, on the other hand. To the contrary, the business relationships among all of these parties appear to be entirely satisfactory. This simple fact, not fraud or collusion, explains the readiness of the parties freely to supplement the Written Contract with layers of oral agreements-- some express and some implied in fact from course of dealing--in order to perpetuate, reinforce, and extend these advantageous business relationships. These same written and oral contracts, both express and implied, that have produced such satisfaction among the parties on the carrier side of the transaction have produced no similar effect on Respondent, which has limited its consideration to the Written Contract and rejected the oral contracts and course of dealing. Petitioner objects to Respondent's treatment of these contractual arrangements on the ground that Respondent has not scrutinized as closely the business relationships and their documentation on the provider's side of the transaction. In its least appealing form, Petitioner's argument is: if Respondent casually accepts the role of Prescription Partners as assignee without insisting on documentation, it must do the same as to the right of Petitioner to access the discounts provided by Carlisle and impose them on out-of-network or nonpreferred providers such as Dr. Daitch. The ultimate question, as a matter of law, is whether the operative reimbursement provisions of the Workers' Compensation Law support Respondent's proposed agency action. But Petitioner's argument, as a matter of fact, exposes serious flaws in Respondent's posture in this case. Nothing in the record suggests any problems demanding regulatory intervention in the form of Respondent's prosecution of Prescription Partner's claim to an additional reimbursement of $56.18. There is no suggestion that Petitioner or its contractual counterparties have disrupted the reimbursement process. In particular, there is no suggestion that the 12% discount from AWP at issue in this case is excessive by industry standards; to the contrary, it is a relatively modest discount. In a more appealing form, Petitioner's argument reflects that multiple parties may be involved in what would seem to the injured employee to be the simplest of transactions--obtaining 60 pills for chronic or recurring pain-- and the business relationships among these parties are defined by a variety of oral and written, express and implied, contracts. In this light, Respondent's failure to demand documentation of the contractual arrangements among the multiple parties on the provider side of the transaction implicitly acknowledges the role of oral contracts and course of dealing in defining business relationships. By contrast, Respondent's insistence on documentation of the business relationships among the multiple parties on the carrier side of the transaction is inconsistent with legitimate business practices. The Conclusions of Law will consider the extent to which Respondent's insistence on documentation on the carrier side of the transaction finds any support among the operative reimbursement provisions.
Recommendation It is RECOMMENDED that the Division of Workers' Compensation enter a final order dismissing the petition of Dr. Jonathan Daitch and Prescription Partners, LLC, for resolution of a reimbursement dispute. DONE AND ENTERED this 7th day of May, 2013, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE 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 7th day of May, 2013.
Findings Of Fact Petitioner, Indigo Manor, is a Florida licensed nursing home and Medicaid provider. Petitioner is a long term provider, and the successor in interest in the facility originally built by Health Care and Retirement Corporation of America (HCRC). Petitioner's address is 595 Williamson Boulevard, Daytona Beach, Florida. Respondent is the single state agency responsible for administering the Florida Medicaid program pursuant to Section 409.913, Florida Statutes, and rules promulgated thereunder. Reimbursement to nursing homes is governed by the Florida Title XIX Long-Term Care Reimbursement Plan (the Plan). The Plan is adopted by reference by Rule 10C-7.0482, Florida Administrative Code. Under the Plan, long-term care providers are reimbursed under a prospective reimbursement methodology. Rates are projected for a rate semester based on historical cost data. The provider is either reimbursed for depreciation and interest or is reimbursed under the Fair Rental Value System ("FRVS") for the property cost component of the provider's rate. Under FRVS, reimbursement is based on the acquisition costs of a capital asset. These acquisition costs are indexed forward based on a portion of the rate of increase in the Dodge Construction Index. (See Long-Term Care Reimbursement Plan at Section V.E.I.a.) Nursing homes participating in the Medicaid program on October 1, 1985, when the FRVS was implemented, were allowed to base their reimbursement on depreciation of actual property and interest costs. Most facilities entering the program after October 1, 1985, were put on FRVS. To prevent any facility from receiving lower reimbursement under the FRVS method as opposed to the depreciation plus interest method, there was a transition period during which some facilities continued to be paid depreciation plus interest payments until the FRVS payments exceeded the depreciation and interest payments as specified in Section V.E.1.h. of the Plan. At that time, a facility would receive reimbursement under the FRVS method. (See Long-Term Care Reimbursement Plan at Section IV.D.) Frank D. Hughes, an expert in Medicaid reimbursement to nursing homes, testified in behalf of the Department. He identified a chart, Respondent's Exhibit 1, which shows that costs reimbursement to a provider may start at a higher reimbursement per diem than FRVS, but that component of the provider's total reimbursement rate will decline over time; and FRVS will start a provider at a lower initial rate, but the property component of the total reimbursement rate will increase over time. Section IV.D. of the Department's Plan limits applicability of the hold harmless/payback clause to facilities entering the Medicaid program after October 1, 1985, which had committed to construction or purchase loans prior to October 1, 1985. The Department's witness clarified that the Department interpreted the language "committed to construction or purchase loans" in the disjunctive, i.e., "committed to construction" or "committed to purchase loans" prior to October 1, 1985. Further, the witness clarified that the Department interpreted the language "committed to construction" to be limited to providers who were subject to legally enforceable agreements for construction or financing. The Department's rationale was that only those providers who were subject to legally enforceable agreements would be adversely effected by the Plan's new method, and needed that protection of the hold harmless/payback clause. Mr. Hughes clarified that, if enforceable commitments had been made for loans, the Department would consider the entity to have met the "commitment" requirement. Mr. Hughes also clarified that, if a provider was able to finance a construction project without loans and accomplish the construction itself, the Department would consider the provider "committed" to construction at the point it entered into subcontracts for the project, or alternatively, at the point actual construction of the facility was begun. A stated intent to build a nursing home or nonbinding preparation prior to October 1, 1985 was insufficient to establish a commitment to construction. In September through November 1985, Health Care and Retirement Corporation of America (HCRC) began the permitting process to construct the subject nursing home on property it owned in Daytona Beach, Volusia County, Florida. The Department conceded that HCRC, the predecessor of Indigo Manor, had taken certain actions towards constructing the facility to include purchasing the property, architectural and engineering drawings and plans, obtaining building permits, and obtaining a Certificate of Need. In November 1985, construction on the project actually began. On November 25, 1985, HCRC entered into a construction contract with a subsidiary of HCRC to construct the nursing home. Funds for construction were obtained through internal transfers at HCRC via lines of credit available to HCRC. It was conceded by Petitioner that there were no loans obtained for the construction of the facility. The facility was completed and enrolled in the Medicaid program in July 1987. At that time, it was placed on the FRVS for its property costs. Subsequently, in December of 1987, the facility was transferred to the cost reimbursement system, effective retroactively to its date of entry in July. There is no documentation in the Department's files to indicate the reason the change was made, and no documentation to indicate additional or revised information was submitted to the Department to justify the change. The facility remained on the cost basis until February 1992, when the Department reviewed the audits in the facility's reimbursement file and determined the facility should not have been changed to cost, but instead should have remained on FRVS. Revised rate sheets dated February 20, 1992, covering all rate setting periods since July 22, 1987, were provided to the Petitioner that advised Petitioner would have its rate recalculated using the FRVS method and indicated the amended rates. On June 1, 1992, Petitioner's accounting firm sent a letter to the Department's Medicaid Cost reimbursement Administrator stating the facility believed the Department made a mistake by recalculating the rates. The letter asked that the matter be reviewed and the "error" corrected. On June 22, 1992, Petitioner was advised that the Department had determined the amount of overpayment received by Indigo Manor based upon the recalculated rates. Petitioner was directed to repay $250,935.46 which represented the difference between the actual rate paid which used the cost reimbursement method, and the rate that should have been paid using the correct FRVS method. By letter dated June 23, 1992, Mr. Hughes explained that, based on the Florida Title XIX Long-Term Care Reimbursement Plan, facilities entering the Medicaid program after October 1, 1985, would have their property costs recognized under the FRVS method. The letter pointed out that the Plan held harmless only those new facilities that had committed to facility construction or purchase loans prior to October 1, 1985. The letter, Petitioner Exhibit 1-B, also stated: The Department has consistently interpreted "committed" to mean enforceable agreements regarding facility construction or purchase loans specific to the facility in question, e.g. a contract for construction or an agreement for purchase loans specific to the facility in question. Based on the Department's June 23, 1992 letter, Petitioner filed a request for formal proceedings pursuant to Section 120.57(1), Florida Statutes, to challenge the Department's determination it should be on FRVS. Subsequent to the filing of that petition, Indigo Manor filed the instant petition alleging the Department is relying on non-rule policy. As of the date of the hearing, the Department had not initiated rulemaking regarding its challenged statement of policy, and the Department offered no evidence showing that rulemaking was not feasible or practicable. Petitioner conceded the phrase "committed to construction or purchase loans" is found within 109C-7.0482, Section IV, D., Florida Administrative Code. Petitioner does not allege that 10C-7.0482, Florida Administrative Code, is not a validly promulgated rule. Petitioner further concedes that contracts were not executed for construction of the facility, and actual construction was not begun until after October 1, 1985. At the formal hearing, the Department did not dispute that Petitioner was substantially affected by the Department's action. The Department did argue, however, that Petitioner did not have standing to bring the instant action as it did not actually own the property or facility at issue, nor did it have a contract in effect with the owner, Health Care and Retirement Corporation (HCRC), prior to October 1, 1985. While the Petitioner did not own the facility, the Department recognizes that Petitioner is the successor in interest to HCRC and is the entity impacted by the Department's rule and Department's policy of construing the term "committed to construction" to be limited to enforceable contracts for construction or purchase loans. HCRC has no present interest in the facility, and the Department's action.
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.
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.
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.
