Appeal of Dickinson Nursing Center, 10564

• Decision Date: 28 June 1984
• Docket Number: No. 10564,10564
• Citation: 353 N.W.2d 754
• Court: North Dakota Supreme Court
• Parties: Medicare & Medicaid Guide P 34,042 In the Matter of the Appeal of DICKINSON NURSING CENTER. DICKINSON NURSING CENTER, Appellant, v. NORTH DAKOTA DEPARTMENT OF HUMAN SERVICES, Appellee. Civ.

Page 754

353 N.W.2d 754

Medicare & Medicaid Guide P 34,042

In the Matter of the Appeal of DICKINSON NURSING CENTER DICKINSON NURSING CENTER, Appellant, v. NORTH DAKOTA DEPARTMENT OF HUMAN SERVICES, Appellee.

Civ. No. 10564.

Supreme Court of North Dakota.

June 28, 1984.

Patric Hooper of Weissburg & Aronson, Los Angeles, Cal., and Albert J. Hardy of Howe, Hardy, Galloway & Maus, Dickinson, for appellant.

Blaine L. Nordwall, Asst. Atty. Gen., North Dakota Dept. of Human Services, Bismarck, for appellee.

VANDE WALLE, Justice.

Dickinson Nursing Center [DNC] has appealed from a district court judgment affirming a decision of the North Dakota Department of Human Services [Department] which excluded certain depreciation and interest costs from DNC's Medical Assistance Program [Medicaid] payment rate. The Department has moved to dismiss DNC's appeal alleging lack of compliance with Rule 30(a) and (b), N.D.R.App.P. We deny the Department's motion to dismiss the appeal and affirm the judgment of the district court.

The material facts are not disputed. On December 31, 1974, Werner G. Nistler, Jr., Emerson J. Collier, Ronald V. Roderick, James L. Meier, and John R. Jacob formed a limited partnership under Oregon law to own and operate DNC, a 185-bed nursing facility in Dickinson which, at all times relevant to this appeal, has been a participant in the Medicaid Program. The limited partnership was later changed to a general partnership and Nistler and Collier each owned 30 percent of the partnership interests.

During 1979 and 1980, Nistler and Collier purchased the partnership interests of the other partners through a series of three separate transactions. After the final "buy-out," Nistler and Collier each owned 50 percent of the partnership interests. Nistler and Collier then entered into a new partnership agreement to own and operate DNC. The agreement was designated to "supersede" the previous partnership agreement and the agreement directed that upon its execution the partners file with the Oregon Corporation Commissioner notice of termination and dissolution of the previous partnership agreement.

In reporting their direct and indirect costs to the Department, Nistler and Collier claimed an increased depreciation cost of $25,730 and an interest expense of $59,345, which reflect the price paid by Nistler and Collier to acquire the other partners' 40 percent interests in DNC's assets. The Department audited these costs in 1981 and determined that the increased depreciation and interest expenses should not be included in DNC's Medicaid payment rate.

DNC requested and received an administrative hearing to contest the decision, and the Department ultimately upheld the initial audit disallowances. DNC appealed to the district court, which affirmed the Department's decision. DNC now appeals from the district court's judgment.

MOTION TO DISMISS

The Department has moved this court to dismiss the appeal, alleging that DNC failed to comply with the provisions of Rule 30(a) and (b), N.D.R.App.P. The Department contends that Rule 30(a) was violated because the appendix submitted by DNC does not contain certain docket entries which the Department considers relevant. Instead, many of the items have been included in a separate document entitled "Excerpts from the Administrative Record." The Department has also submitted a separate appendix. The Department further asserts that Rule 30(b) was violated because DNC did not serve a designation of the parts of the record intended to be included in the appendix or a statement of the issues to be presented.

Failure to comply with the Rules of Appellate Procedure may be, in the discretion of this court, a ground for dismissal of an appeal. Rules 3(a) and 13, N.D.R.App.P.; Matter of Estate of Raketti, 340 N.W.2d 894 (N.D.1983). However, such a severe sanction is to be applied sparingly, and we have often indicated our preference to reach the merits of cases when the record and briefs on the merits have been filed and the case is ready to be heard. Raketti, supra.

Because this court now has before it three separate "appendix-like" documents to review, the Department asserts that it has been prejudiced by the resulting interference with its opportunity "to present its case to the court in a cohesive, concise, and consistent manner--the effect of which cannot be objectively measured."

The circumstances in this case do not warrant dismissal of the appeal. The Department's claim that prejudice is inherent in any disruption of the appellate review process is not sufficient to demonstrate actual prejudice. Assessment of costs against the noncomplying party is a more appropriate sanction in the context of the present case. See Raketti, supra. We therefore assess costs in the amount of $250 against DNC to compensate the Department for costs incurred in preparing a separate appendix.

MERITS

I. General Medicaid Reimbursement Principles

Because this case involves a rather unique area of the law, a brief overview of the relevant Medicaid reimbursement principles is helpful to understand the basis for the dispute in this action.

The Medicaid Program, Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396 et seq., provides for a system of medical care services for the poor which is subsidized by both State and Federal funds. Medicaid is administered at the Federal level by the Department of Health and Human Services through the Health Care Financing Administration, and at the State level by the Department. The furnishing of medical services under the Medicaid Program is accomplished by a direct payment from the Department to health-care facilities which act as "providers" of services to eligible recipients. Providers of long-term care, such as DNC, are reimbursed for services rendered to Medicaid patients in accordance with Chapter 75-02-06, N.D.A.C., ¹ promulgated by the Department under the authority granted by Sec. 50-24.1-04, N.D.C.C.

State agencies administering Medicaid "may not pay more in the aggregate for ... long-term care facility services than the amount that would be paid for services under the Medicare principles of reimbursement ..." [42 C.F.R. Sec. 447.272(a) (1983) ]. ² Thus the Department's payment-rate regulations are closely patterned after the corresponding principles governing reimbursement for long-term-care services rendered under Medicare, Title XVIII of the Social Security Act, 42 U.S.C. Sec. 1395 et seq., which provides for a system of federally subsidized health care services for the aged and disabled. The corresponding Medicare regulations are found at 42 C.F.R. Sec. 405.401 et seq.

Medicaid providers are reimbursed for the "reasonable cost" of providing health-care services to eligible recipients. See Sec. 75-02-06-01(17), N.D.A.C. Among the "reasonable costs" reimbursable to long-term-care facilities are depreciation allowances for a health-care facility's buildings and equipment [Sec. 75-02-06-03, N.D.A.C.], and interest expenses on funds borrowed for the acquisition, operation, or maintenance of facilities and equipment [Sec. 75-02-06-04, N.D.A.C.]. ³

Generally, a provider claiming a depreciation allowance is not limited to the original cost basis of the facility's assets, but is allowed depreciation based on the "historical costs" of the assets. Historical costs are defined as "those costs which are incurred by the present owner in acquiring and preparing the asset for use." Sec. 75-02-06-03(5)(a), N.D.A.C. However, if the purchaser acquires the assets in a sale that is not bona fide, the purchaser is limited to the seller's cost basis. Sec. 75-02-06-03(5)(c), N.D.A.C. Corresponding limits are also imposed on reimbursement for interest paid in connection with the acquisition of a provider's assets. See Sec. 75-02-06-04, N.D.A.C.; see also 42 C.F.R. Sec. 405.419(d) (1983).

Section 75-02-06-07(1), N.D.A.C., consistent with 42 C.F.R. Sec. 405.427 (1983), provides in pertinent part:

"75-02-06-07. RELATED ORGANIZATION.

"1. Costs applicable to services, facilities, and supplies furnished to a provider by organizations related to the provider by common ownership or control shall not exceed the lower of the cost to the related organization or the price of comparable services, facilities, or supplies purchased elsewhere primarily in the local market...."

The Department determined that Sec. 75-02-06-07(1), N.D.A.C., applied in this case to limit DNC's depreciation costs and interest expenses to no more than the cost to the seller, thereby effectively disallowing DNC's claims relating to the acquisition of the facility by Nistler and Collier.

II. Standard of Review

Our review of an administrative agency decision involves a three-step process whereby we determine whether or not the findings of fact are supported by a preponderance of the evidence, the conclusions of law are sustained by the findings of fact, and the decision is supported by the conclusions of law. Sec. 28-32-19, N.D.C.C.; Grant Farmers Mutual v. State By Conrad, 347 N.W.2d 324 (N.D.1984). We do not make independent findings of fact or substitute our judgment for that of the agency, but determine only whether or not a reasoning mind reasonably could have determined that the factual conclusions reached were proved by the weight of the evidence from the entire record. Power Fuels, Inc. v. Elkin, 283 N.W.2d 214 (N.D.1979). In making this determination, we look to the record compiled before the administrative agency rather than to the findings of the district court. Asbridge v. North Dakota State Highway Com'r, 291 N.W.2d 739 (N.D.1980).

Administrative agency decisions on questions of law are fully reviewable by our court. Grant Farmers Mutual, supra; State Hospital v. N.D. Employment Security Bureau, 239 N.W.2d 819 (N.D.1976). In the complex Medicare reimbursement field, however, Federal courts have recognized that the administrative agency has been granted broad discretion to develop...