AGI-Bloomfield Convalescent Center, Inc. v. Toan

• Decision Date: 24 July 1984
• Docket Number: No. WD,AGI-BLOOMFIELD,WD
• Citation: 679 S.W.2d 294
• Court: Missouri Court of Appeals
• Parties: , Medicare & Medicaid Guide P 34,093 CONVALESCENT CENTER, INC., d/b/a Bloomfield Convalescent Center, et al., Respondents, v. Barrett A. TOAN, Director, Department of Social Services, et al., Appellants. 34194.

Page 294

679 S.W.2d 294

7 Soc.Sec.Rep.Ser. 798, Medicare & Medicaid Guide P 34,093

AGI-BLOOMFIELD CONVALESCENT CENTER, INC., d/b/a Bloomfield

Convalescent Center, et al., Respondents, v. Barrett A. TOAN, Director, Department of Social Services, et

al., Appellants.

No. WD 34194.

Missouri Court of Appeals,

Western District.

July 24, 1984.

Motion for Rehearing and/or Transfer to

Supreme Court Overruled and Denied

Oct. 2, 1984.

Application to Transfer Denied

Nov. 20, 1984.

Larry L. Kendrick, Dept. of Social Services, Div. of Gen. Counsel, Jefferson City, for appellants.

Harvey M. Tettlebaum, Jefferson City, for respondents.

Before SOMERVILLE, P.J., and CLARK and LOWENSTEIN, JJ.

SOMERVILLE, Presiding Judge.

Plaintiffs, some twenty-three (23) separate corporate entities operating nursing homes in the State of Missouri (hereinafter collectively referred to as respondent nursing homes), filed an action for declaratory judgment and injunctive relief in the Circuit Court of Cole County respecting the validity and enforcement of certain provisions of 13 CSR 40-81.081, ¹ captioned "Prospective Reimbursement Plan for Long-Term Care". The aforementioned carried an effective date of October 1, 1981, and was promulgated by the Department of Social Services, State of Missouri, which is mandated by state law to administer the Medicaid program in Missouri. The following were named as defendants: Department of Social Services; Barrett A. Toan, Director, Department of Social Services; Division of Family Services, Department of Social Services; and James R. Moody, Director, and Gretchen Engquist, Deputy Director, Division of Family Services, Department of Social Services (hereinafter collectively referred to as appellants).

The homes operated by respondent nursing homes are leased facilities--twenty-two (22) by "assignment" of existing leases by lessee-assignors and one (1) by lease from an owner-lessor. ² Respondent nursing homes, in addition to rental payments assumed, paid various amounts, described as "lease acquisition costs", to the lessee-assignors for "assignment" of the leases. Each of respondent nursing homes' predecessors (in the context of facility) were participating in the Medicaid program and had established Medicaid per diem reimbursement rates. All of the facilities operated by respondent nursing homes are managed by an independent management company on a fee basis of seven (7) percent of the annual gross revenues of respondent nursing homes. The lease acquisition mechanism has become increasingly prevalent in recent years in the nursing home industry resulting in higher costs for patient care without any commensurate increase in quality or quantity of care.

On or about March 1, 1982, the twenty-three corporate plaintiffs filed requests with the Division of Family Services, Department of Social Services, for establishment of increased Medicaid per diem reimbursement rates on the asserted ground that each was a "new provider". At this juncture it is pertinent to note 13 CSR 40-81.081(4)(B): "In the case of new providers or newly constructed facilities entering the Missouri Medicaid program after July 1, 1981 and for which no rate has previously been set, the director or his designee may set an initial rate for such facility as in his discretion he deems appropriate. Such initial rate shall be subject to review by the advisory committee under the provisions of section (7) of this regulation." The higher rates sought reflected, among other things, substantial increases for recovery of capital costs attributable to "lease acquisition costs". Respondent nursing homes do not contend that any "newly constructed facilities" are involved.

The Department of Social Services, by a series of correspondence, duly advised respondent nursing homes that they were not eligible for the increased rates sought as leasing of the nursing home facilities did not constitute a "change of ownership" as defined in 13 CSR 40-81.081(3)(L), nor were plaintiffs "new providers" as defined in 13 CSR 40-81.081(3)(M). The term "change of ownership" is defined as follows in 13 CSR 40-81.081(3)(L): "Change of Ownership. Where the fee title to the real estate and the building and fixtures, which building is or has been operated as a facility providing long-term twenty-four (24)-hour care is transferred and recorded, except when the transition is between related parties." The term "new providers" is defined as follows in 13 CSR 40-81.081(3)(M): "New Providers. Facility or operator owning or operating a facility which was not participating in the Missouri Medicaid program on July 1, 1981." On the basis of the premises just mentioned, the Department of Social Services advised respondent nursing homes that each, respectively, would be reimbursed at the Medicaid per diem reimbursement rates in effect for their predecessor lessee-assignors or lessor.

Respondent nursing homes expressed their collective displeasure at rejection of their requests for the establishment of new Medicaid per diem reimbursement rates by filing the instant lawsuit seeking a declaratory judgment that 13 CSR 40-81.081(3)(L), defining "change of ownership", and 13 CSR 40-81.081(3)(M), defining "new providers", promulgated by the Department of Social Services, were beyond its statutory authority and, hence, "improper, void and unenforceable". By way of companion relief, respondent nursing homes prayed for a mandatory injunction, in the event the declaratory relief sought was granted, ordering appellants to set new Medicaid per diem reimbursement rates, respectively, for respondent nursing homes.

Cutting through a maze of interim procedural events, e.g. certain show cause and interlocutory orders, the trial court ultimately rendered judgment wherein it declared, "as a matter of law", that respondent nursing homes, and each of them, were "new providers" under 13 CSR 40-81.081. The trial court explicated its reasons for doing so as follows in the final judgment entered:

"a. Plaintiffs and each of them were not participating in the Medicaid (Title XIX) Program on July 1, 1981.

b. Under 13 CSR 40-81.081(3)(F) a 'provider' is a 'facility with a valid participation agreement'.

c. Only a corporate or individual person (or persons) has the ability to enter into a 'valid' participation agreement.

d. Under 13 CSR 40-81.081(3)(L) an operator who was not participating in the Missouri Medicaid program on July 1, 1981, is a new provider, even though a prior provider operating a facility may have been in the program on that date."

Consistent with its declaration that respondent nursing homes were "new providers" under 13 CSR 40-81.081, the trial court decreed that appellants set new Medicaid per diem reimbursement rates for respondent nursing homes, and, in conjunction therewith, the trial court set forth guidelines to be followed by appellants in doing so, one of which would enable respondent nursing homes to recapture "lease acquisition" costs.

Three significant observations are appropriate at this juncture. First, the trial court, in its final judgment and decree, specifically held that "[p]laintiffs' argument that 13 CSR 40-81.081(3)(F), (L) and (M) are beyond the scope of the statute giving authority to defendants to promulgate rules and are therefore improper, void and unenforceable is rejected." (emphasis added) Second, the trial court, neither directly nor by innuendo, suggested or implied that the definition of "change of ownership" in 13 CSR 40-81.081(3)(L), or the definition of "new providers" in 13 CSR 40-81.081(3)(M), were equivocal or fraught with ambiguity. Third, respondent nursing homes have never contended, and the trial court did not purport to find or hold, that §§ 208.152.1 and 208.159, RSMo Supp.1983, statutorily authorizing the Department of Social Services to promulgate rules for administering the Medicaid program, were so vague as to constitute an unlawful delegation of legislative authority to the Department of Social Services. In view of the aforementioned, the trial court's declaration that respondent nursing homes were "new providers" under 13 CSR 40-81.081, supra, thereby rejecting appellants' definition of "new providers", is difficult to correlate with any recognized legal principle.

The genesis of this litigation is some rather sweeping changes in the Medicaid area of social legislation. The Medicaid program, enacted as Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq., provides, inter alia, for federal and state sharing of payments for nursing home services provided to certain qualified individuals.

The program is a classic example of what may be aptly referred to as cooperative federalism. The federal government provides matching funds to participating states which, subject to compliance with certain federal requirements, locally administer their own programs and transmit payments to providers of nursing home services. By reason of Medicaid's scope and magnitude, dual (federal and state) legislative and administrative involvement, and frequent amendments to accommodate changes of direction in social experimentation, cases involving rules and regulations promulgated by participating states for administering their respective programs literally abound with what appear, at first blush, to be intimidating legal questions. However, when reduced to basics and put in proper perspective, such questions lose their aura of intimidation. The instant case is no exception.

Prior to October 1, 1981, the plan promulgated by the Department of Social Services for determining reimbursement rates for nursing home services in Missouri under the Medicaid program could appropriately be described as a retrospective reimbursement plan. In essence, an estimated patient per diem reimbursement rate was established for each participating nursing home at the beginning of the state fiscal year and payments were made to participating homes on that basis. At...