DEPARTMENT OF MED. v. Beverly Healthcare, Record No. 032313.

• Decision Date: 17 September 2004
• Docket Number: Record No. 032313.
• Citation: 268 Va. 278,601 S.E.2d 604
• Court: Virginia Supreme Court
• Parties: DEPARTMENT OF MEDICAL ASSISTANCE SERVICES v. BEVERLY HEALTHCARE OF FREDERICKSBURG, et al.

601 S.E.2d 604

268 Va. 278

DEPARTMENT OF MEDICAL ASSISTANCE SERVICES v. BEVERLY HEALTHCARE OF FREDERICKSBURG, et al.

Record No. 032313.

Supreme Court of Virginia.

September 17, 2004.

Paige S. Fitzgerald, Special Counsel to DMAS (Jerry W. Kilgore, Attorney General; Kim F. Piner, Senior Assistant Attorney General, on briefs), for appellant.

Dominic Madigan (Thomas W. McCandlish Holton, on brief), Richmond, for appellees.

Present: All the Justices.

OPINION BY Justice LAWRENCE L. KOONTZ, JR.

In this appeal, we consider whether Code § 2.2-4030, which provides in subsection (A) that an award of attorneys' fees "shall not exceed $25,000" in a civil case successfully contesting the action of an agency of the Commonwealth, permits parties whose claims are combined in a single action by operation of Rule 2A:3(b) to recover individual awards of attorneys' fees up to the statutory maximum. We also consider whether certain claims in the present case were barred by a regulatory limitations period for challenging an agency action under the Administrative Process Act (APA). Code § 2.2-4000 et seq.

BACKGROUND

This appeal arises from a judgment of the Court of Appeals of Virginia affirming a judgment of the Circuit Court of Spotsylvania County (the trial court) that the Virginia Department of Medical Assistance Services (DMAS) had improperly determined that eight nursing home facilities¹ in Virginia were not entitled to increased Medicaid reimbursement for their expenses under a higher cost ceiling applicable under 12 VAC § 30-90-20(C) to such facilities in Northern Virginia for several years at issue. Department of Medical Assistance Services v. Beverly Healthcare, 41 Va.App. 468, 484-85, 585 S.E.2d 858, 867 (2003). The Court of Appeals also affirmed the trial court's judgment that a determination by DMAS that five of the claims for increased reimbursement by four of the providers were time barred under the regulatory limitations period applicable to those claims. Id. at 490, 585 S.E.2d at 869. Additionally, the Court of Appeals affirmed the trial court's judgment that, pursuant to Code § 2.2-4030, the providers were entitled to recover reasonable costs and attorneys' fees and that the $25,000 cap on attorneys' fees provided by that statute did not apply to any claim for costs. Id. at 491-95, 585 S.E.2d at 870-72. However, the Court of Appeals rejected the determination of the trial court that the $25,000 cap should be applied on a per case basis, rather than a per party basis. Id. at 495, 585 S.E.2d at 872.

In appealing from the judgment of the Court of Appeals to this Court, DMAS has not assigned error to the determination that the providers are entitled to the increased reimbursement or that they are entitled to recover reasonable costs and attorneys' fees. Rather, DMAS has limited its appeal to the question whether the Court of Appeals correctly determined that Code § 2.2-4030 sets the cap for an award of attorneys' fees at $25,000 per party, rather than $25,000 for all parties who contested the agency's action in the case. By assignment of cross-error, four of the providers challenge the determination that five of their claims were time barred by the regulatory limitations period. Because the Court of Appeals has fully summarized the factual and procedural history of the case, id. at 473-81, 585 S.E.2d at 861-65, we will confine our discussion of the facts here to those directly relevant to the resolution of the two issues before us.

DMAS is the agency of the Commonwealth responsible for administering Virginia's Medicaid program and has the specific task of determining reimbursement rates for providers of nursing home services to Medicaid recipients. Under the Virginia Medicaid program, each participating provider receives periodic payments during a fiscal year and then submits a corresponding annual cost report to DMAS detailing the actual costs incurred by the facility for the care and services provided to its Medicaid patients. DMAS then reviews the provider's cost report and issues a "Notice of Program Reimbursement" (NPR) stating which expenses are to be reimbursed and calculating the amount of any overpayment or underpayment during the year. If the provider disagrees with DMAS's annual reimbursement determination, it may appeal the determination under provisions of the APA and "the state plan for medical assistance." Code § 32.1-325.1(B).

The rate of reimbursement for a provider is determined, in part, by its location in a particular geographic region or "peer group" within the Commonwealth. Pursuant to 12 VAC § 30-90-20(C), the Commonwealth is divided by DMAS into three such peer groups: the Virginia portion of the Washington DC-MD-VA Metropolitan Statistical Area (Northern Virginia MSA) peer group, the Richmond-Petersburg MSA peer group, and the "rest of the state" peer group. In general terms, the rate of reimbursement for each peer group is based upon differing costs of operation in each region of the Commonwealth. The eight providers in this case were originally located in the "rest of the state" peer group, which has a lower rate of reimbursement than the Northern Virginia MSA peer group.

On June 30, 1993, the federal Office of Management and Budget, which for statistical purposes designates certain political jurisdictions that make up a particular metropolitan area, updated the definition of the Northern Virginia MSA to include the jurisdictions in which each of the eight providers are located. The expanded definition of the Northern Virginia MSA was subsequently adopted effective October 1, 1993 by the Healthcare Financing Administration (HCFA), which administers the federal Medicare program and determines reimbursement for Medicare service providers in much the same way as DMAS calculates Medicaid reimbursement. However, due to a congressionally mandated freeze on additional federal spending, it was further determined that the expansion of the Northern Virginia MSA would not result in increased reimbursement for Medicare providers within the newly added jurisdictions until October 1, 1997. Relying on this determination, DMAS concluded that Medicaid reimbursements also would not be affected by the change in the Northern Virginia MSA until that date.

On September 26, 1996, the providers wrote to the Director of DMAS requesting that he issue a "case decision" implementing the June 30, 1993 expansion of the Northern Virginia MSA peer group effective for all reimbursements for the cost of Medicaid reimbursable services incurred by them on or after October 1, 1993. By letter dated October 4, 1996, the Director declined to rule on the request and advised the providers that decisions regarding reimbursement were appealable under the provisions of the APA. In response, the providers advised DMAS that, while they disputed the assertion that changes in peer group classifications were appealable under the APA, they would appeal the reimbursement amounts determined under NPRs for services provided by them on and after October 1, 1993.

Following an informal fact-finding conference, DMAS determined that the providers were not due additional reimbursement and issued a letter ruling to that effect on May 1, 1998. The providers appealed this decision and a formal hearing was held October 26, 1999. The hearing officer issued a recommendation in favor of the providers on November 10, 2000. However, the Director of DMAS rejected that recommendation in a final case decision rendered on April 27, 2001. In rejecting the hearing officer's recommendation, the Director determined that the delay in implementing the expanded definition of the Northern Virginia MSA by HCFA for Medicare reimbursement justified DMAS's determination that Medicaid reimbursement would also not be affected by the change until October 1, 1997. The Director further determined that even if the peer group change should have been made in 1993 so as to include the providers in the Northern Virginia MSA, five of the NPRs had not been appealed in a timely fashion because they were not appealed within 90 business days of the NPRs being issued as required by former 12 VAC § 30-90-131(3).²

The providers noted separate appeals of the Director's action to the trial court. However, pursuant to Rule 2A:3(b), the appeals were consolidated in "the [trial] court having jurisdiction that is named in the [first] notice of appeal ... filed." As noted above, the trial court reversed the determination by DMAS that the providers were not entitled to increased reimbursement based upon the 1993 expansion of the Northern Virginia MSA, but upheld the determination that five of the claims were time barred. Finding that the providers had "substantially prevailed" in their appeals, the trial court ruled that they were entitled to recover costs and attorneys' fees from DMAS. However, the court further ruled that "the instant case constitutes a single civil case for purposes of the $25,000 limit on the award of [attorney's] fees pursuant to ... Code § 2.2-4030" and, thus, awarded each provider only $3,125 for attorneys' fees.

On appeal to the Court of Appeals, DMAS challenged the trial court's determination that the providers were entitled to increased reimbursement, with the providers assigning cross-error to the determinations that five of the claims were time barred and that Code § 2.2-4030 capped attorneys' fees at a total of $25,000 for all parties. As noted above, the Court of Appeals' holdings that the parties were each entitled to recover up to $25,000 in attorneys' fees and that five of...