Bel Air Assocs. v. N.H. Dep't of Health & Human Servs.

• Decision Date: 28 September 2006
• Docket Number: No. 2005–522.,2005–522.
• Citation: 910 A.2d 1232,154 N.H. 228
• Court: New Hampshire Supreme Court
• Parties: BEL AIR ASSOCIATES v. NEW HAMPSHIRE DEPARTMENT OF HEALTH AND HUMAN SERVICES.

154 N.H. 228

910 A.2d 1232

BEL AIR ASSOCIATES

v.NEW HAMPSHIRE DEPARTMENT OF HEALTH AND HUMAN SERVICES.

No. 2005–522.

Supreme Court of New Hampshire.

Argued: March 17, 2006.

Opinion Issued: Sept. 28, 2006.

Rehearing Denied Nov. 29, 2006.

Devine, Millimet & Branch, P.A., of Manchester (Thomas Quarles, on the brief and orally), for the petitioner.

Kelly A. Ayotte, attorney general (Suzan M. Lehmann, senior assistant attorney general, and Laura Lombardi, assistant attorney general, on the brief, and Ms. Lehmann orally), for the respondent.

DUGGAN, J.

The petitioner, Bel Air Associates, appeals two orders of the Superior Court (McGuire, J.), the first granting the motion to dismiss filed by the respondent, the New Hampshire Department of Health and Human Services (DHHS), and the second denying the petitioner leave to further amend its complaint after the dismissal. We affirm in part and reverse in part.

The petitioner's amended complaint alleges the following facts. The petitioner is a New Hampshire partnership that operates a State-licensed nursing home in Goffstown. In the mid–1990s, the State ordered the petitioner to close one of its two buildings. In order to replace the capacity lost due to this closure, the petitioner sought and received approval from the State for the construction of an addition.

DHHS is responsible for administering the Medicaid program in New Hampshire. The Medicaid program, which provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs, began in 1965 with the enactment of Title XIX of the Social Security Act. See Pub.L. No. 89–97, § 121(a), 79 Stat. 343 (1965) ; 42 C.F.R. 430.0 (2005).

States are not required to participate in Medicaid, but all of them do. The program is a cooperative one; the Federal Government pays between 50% and 83% of the costs the State incurs for patient care, and, in return, the State pays its portion of the costs and complies with certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program.

Arkansas Dept. of Health and Human Serv. v. Ahlborn, 547 U.S. 268, ––––, 126 S.Ct. 1752, 1758, 164 L.Ed.2d 459 (2006).

In order to be eligible to participate in Medicaid, States must submit and receive approval for their "State plans for medical assistance." See 42 U.S.C. § 1396 (2000).

The State plan is a comprehensive written statement submitted by the agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of title XIX, the regulations in [42 C.F.R.] Chapter IV, and other applicable official issuances of the [Federal] Department [of Health and Human Services].

42 C.F.R. § 430.10 (2005). Title XIX provides detailed requirements for the contents of the State plan. See 42 U.S.C. § 1396a(a) (2000). DHHS does not currently put the State plan through the State rulemaking process outlined in RSA chapter 541–A, the New Hampshire Administrative Procedures Act (APA), although it has submitted the relevant provisions of the State plan to rulemaking in the past. See "Methods and Standards for Reimbursement on a Reasonable Cost–Related Basis for Long–Term Facilities Under Title XIX of the Social Security Act," Off. Leg. Serv. Div. Admin. Proc. Doc. # 983 ("Attachment 4.19–D") (eff. July 19, 1977).

DHHS establishes rates of reimbursement for providers of services to Medicaid-eligible persons. Reimbursement is based upon certain allowable costs, including certain capital costs. See N.H. Admin. Rules, He–W 593.02 (2004) (amended and readopted as He–E 806.05 (2006)). The methodology used by DHHS to determine the actual reimbursable rates is set out in part in rules adopted through the APA and in part in "Attachment 4.19–D of the Title XIX State Plan." See N.H. Admin. Rules, He–W 593.04(a) (1997) (amended and readopted as He–E 806.31(a) (2006)).

The petitioner alleges that in 2001, DHHS utilized two techniques to reduce reimbursements to nursing homes. First, "DHHS changed its rate-setting methodology to impose a cap on capital cost recoveries at the 85th percentile of all nursing homes' allowable capital costs expenses." Second, "DHHS created what it calls the ‘budget neutrality factor’ ... an across-the-board rate reduction which DHHS applies after DHHS determines the individual rate which it should pay to nursing homes for Medicaid reimbursement for the prospective six month rate period." These reductions were both implemented through amendments to the State plan, and not put through the APA process.

The petitioner filed suit in late December 2003, challenging both reductions. In January 2004, before DHHS had been served, the petitioner filed its first motion to amend its complaint. That motion was granted in February 2004. A second motion to amend was granted in December 2004. As amended, the complaint contains three counts. The first count alleges a violation of the Social Security Act. The second count alleges a violation of the State and Federal Constitutions. The third count alleges a violation of the APA and seeks damages.

DHHS filed a motion to dismiss. The trial court dismissed the first count, ruling that the claim under the Social Security Act was barred by a recent First Circuit Court of Appeals case. See Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d 50 (1st Cir.2004). The trial court dismissed the second count because the petitioner had failed to allege facts sufficient to constitute either a violation of equal protection or a taking under the State or Federal Constitutions. The trial court dismissed the third count, ruling that the doctrine of sovereign immunity barred a damage action under the APA.

The petitioner appeals the dismissal of its second and third counts.

In reviewing the trial court's grant of a motion to dismiss, our task is to ascertain whether the allegations pleaded in the plaintiff's writ are reasonably susceptible of a construction that would permit recovery. We assume all facts pleaded in the plaintiff's writ are true, and we construe all reasonable inferences drawn from those facts in the plaintiff's favor. We then engage in a threshold inquiry that tests the facts in the complaint against the applicable law.

Berry v. Watchtower Bible & Tract Soc., 152 N.H. 407, 410, 879 A.2d 1124 (2005) (quotations and citations omitted).

As to the third count, the petitioner first argues that the provisions in the State plan imposing the capital cost cap and budget neutrality factor are rules that have never been properly adopted under the APA, are therefore invalid, and may not be used to reduce the level of reimbursement. DHHS argues that these provisions are exempt from the APA. The trial court did not address these arguments and instead ruled that the petitioner had not properly brought a declaratory judgment action pursuant to RSA 541–A:24 (1997) to determine whether DHHS has complied with the APA.

We first examine whether the amended complaint constitutes a declaratory judgment action under RSA 541–A:24, which provides:

The validity or applicability of a rule may be determined in an action for declaratory judgment in the Merrimack county superior court if it is alleged that the rule, or its threatened application, interferes with or impairs, or threatens to interfere with or impair, the legal rights or privileges of the plaintiff.

RSA 541–A:24 "on its face requires only that a plaintiff challenging the validity of a rule allege that the rule impairs or interferes with a right or privilege." Town of Orford v. N.H. Air Resources Comm., 128 N.H. 539, 541, 522 A.2d 979 (1986) (emphasis omitted). The petitioner's complaint alleges that the "imposition of the 85th percentile cap was not done through the mandatory rule-making process" and that without that change to the State plan, Bel Air would be "entitled to be reimbursed for 100% of its allowable capital costs." The petitioner's complaint also alleges that the "creation and use of this budget neutrality factor without legislative authorization, and without adherence to the rulemaking mandates of RSA 541–A, constitutes a violation of RSA 541–A" and that "it would have received [more reimbursement] had the budget neutrality factor not been applied." These allegations are sufficient to state a claim under RSA 541–A:24. We therefore conclude that the trial court erred in dismissing count III of the petitioner's amended complaint on the ground that it was not properly brought in accordance with RSA 541–A:24.

The second issue raised by the petitioner in its appeal of the dismissal of count III concerns the validity of the capital cost cap and budget neutrality factor under the APA. Although the trial court did not reach this issue, we exercise our discretion to address it given that it has been fully briefed and because the proper interpretation of a statute is a question of law for this court to decide. See Thayer v. Town of Tilton, 151 N.H. 483, 486, 861 A.2d 800 (2004).

In determining whether these amendments to the State plan violate the APA, we first consider whether they are rules within the meaning of RSA 541–A:1, XV (Supp.2005), which provides:

"Rule" means each regulation, standard, or other statement of general applicability adopted by an agency to (a) implement, interpret, or make specific a statute enforced or administered by such agency or (b) prescribe or interpret an agency policy, procedure or practice requirement binding on persons outside the agency, whether members of the general public or personnel in other agencies.

The petitioner asserts that these amendments are binding on persons (such as itself) outside the agency. See RSA 541–A:1, XIII (Supp.2005) ("person" defined to include partnerships such as the petitioner). Where an agency's efforts "effect substantive changes binding on persons outside the agency, the agency's policy constitutes a ‘rule’ that...