Beverly Enterprises–mo. Inc. D/B/A Glennon Place Nursing Ctr. v. Dep't of Soc. Serv.

• Decision Date: 09 December 2008
• Docket Number: No. WD 69040.,WD 69040.
• Citation: 349 S.W.3d 337
• Parties: BEVERLY ENTERPRISES–MISSOURI INC. d/b/a Glennon Place Nursing Center, et al., Appellant,Bethesda Long Term Care, Inc., Amicus Curiae,v.DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Respondent.
• Court: Missouri Court of Appeals

349 S.W.3d 337

BEVERLY ENTERPRISES–MISSOURI INC. d/b/a Glennon Place Nursing Center, et al., Appellant,Bethesda Long Term Care, Inc., Amicus Curiae,

v.DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Respondent.

No. WD 69040.

Missouri Court of Appeals, Western District.

Dec. 09, 2008.Application for Transfer Sustained

Feb. 24, 2009.

Case Retransferred Oct. 6, 2009.

Court of Appeals Opinion Re-adopted

Dec. 22, 2009.

West CodenotesRecognized as Repealed by Implication42 C.F.R. § 447.250 Mark E. Long and Jeffrey Scott Stacey, Jefferson City, MO, for Respondent.Richard D. Watters, St. Louis, MO, for Amicus Curiae.PER CURIAM:

Beverly Enterprises–Missouri, Inc. and Commercial Management, Inc. (Beverly) appeal the judgment of the Cole County Circuit Court declaring valid emergency and proposed amendments to the regulation governing Medicaid reimbursement rates promulgated by the Missouri Department of Social Services, Division of Medical Services (Division).¹ The Division cross-appeals from the judgment of the circuit court reversing the decision of the Administrative Hearing Commission (AHC).² The AHC ruled that the Division incorrectly calculated the administration cost component ceiling of the Medicaid per diem reimbursement rates of seventeen nursing facilities operated by Beverly. The judgment of the circuit court is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

Beverly operates seventeen long-term care nursing facilities in Missouri. These nursing facilities participate in the Missouri Medicaid program. The Division administers the program and has authority to determine Medicaid reimbursement rates for nursing facilities.

Under the Missouri Medicaid program, a nursing facility receives a set daily rate per Medicaid resident. The rule governing Medicaid reimbursement to nursing facilities is the “Prospective Reimbursement Plan for Nursing Facility Services,” 13 CSR 70–10.015 (2005).³ The per diem reimbursement rate is a fixed, prospective rate calculated based on allowable costs in previous years, application of trend factors, and various incentives and adjustments. Each nursing facility submits an annual cost report to the Division. The Division selects a base cost year to establish the facilities' reimbursement rates and maintains a data bank of the audited cost report data for the base year that has been trended for inflation. The allowable costs that are used to determine a facility's reimbursement rate are grouped into four components: patient care, ancillary, administration, and capital. The per diem reimbursement rate is the sum of the individual cost component per diems for the facility plus a working capital allowance and other miscellaneous incentives and adjustments.

The administration and capital cost components, which are fixed regardless of occupancy rate, are subject to a minimum utilization adjustment. Because the Department considers it more efficient and economical for facilities to spread their fixed administration and capital costs over more patients, the adjustment provides lower reimbursement to facilities with an occupancy rate of less than the minimum utilization percentage. Thus, when cost components are adjusted for minimum utilization, a facility's costs are spread over more patient days than the facility actually observed, thereby decreasing the facility's per diem reimbursement rate.

The patient care, ancillary, and administration cost components of a facility are then compared to a ceiling for those components. The facility's per diem rate is the lower of its calculated per diem rate for each of the components or the ceiling for that component.

Thirteen CSR 70–10.015, or the “Reimbursement Plan,” became effective on January 1, 1995. The Reimbursement Plan was the result of the work of a task force commissioned by the Governor to recommend a new, better reimbursement plan than the plan in place. The task force started meeting in 1993 and consisted of representatives from several state agencies. The task force analyzed other states' reimbursement systems, considered actual industry experience, and ran various cost scenarios. The task force recommended and the Division adopted an 85% minimum utilization adjustment for the administration and capital cost components in the 1995 version of the Reimbursement Plan because that was the average occupancy rate of Missouri facilities at the time.

During the 2004 legislative session, the General Assembly passed and the Governor approved Senate Bill 1123, which was codified at section 208.225, RSMo Cum.Supp.2004, and became effective on July 1, 2004. Section 208.225 required the Division to recalculate Medicaid per diem reimbursement rates and to set the administration cost ceiling as 110% of the median cost center. Although not required by section 208.225, the Division also changed the minimum utilization adjustment for the capital cost component from 85% to 73% and eliminated the minimum utilization adjustment for the administration cost component. By letters dated July 1 and 13, 2004, the Division notified Beverly's nursing facilities of their new per diem rates for state fiscal year 2005, July 1, 2004, to June 30, 2005.

Prior to March 10, 2005, the Division calculated that the costs of implementing the July 2004 rate increase would be $58.4 million for state fiscal year 2005. However, the General Assembly had appropriated only $42.5 million to fund the July 2004 rate increase. Thus, the Division calculated that approximately $16 million in additional appropriations would be required to make Medicaid payments to nursing facilities for services rendered during state fiscal year 2005 under the current reimbursement plan. The Division brought the anticipated appropriation shortfall to the attention of the General Assembly in June 2004 and to the Governor in October 2004. In late January 2005, the Division learned that its request for approximately $16 million to compensate for the shortfall was not part of the Governor's supplemental appropriations request to the legislature. Without the supplemental appropriation, the Division projected that Medicaid payments to nursing homes would end in May 2005 for state fiscal year 2005. Thus, the Division began looking at different options for emergency rule promulgation to enable it to make payments within the appropriated amount.

The Division reviewed the cost reports submitted by all Missouri Medicaid nursing home providers. It also reviewed the Certificate of Need Program's quarterly surveys and summaries, which track trends in Medicaid nursing facilities, their occupancy, available beds, and Medicaid recipients. The surveys indicated the following—the number of Missouri Medicaid nursing facilities had remained fairly steady since 2001, the number of available Medicaid beds had increased slightly since 1995, and 51% of Medicaid beds were occupied as of 2005. The Division was also aware of the State Auditor's Report, which concluded that the nursing home industry in Missouri was overbuilt. Finally, the Division met with two nursing home associations in the state, the Missouri Health Care Association (MHCA) and the Missouri Association of Homes for the Aging (MOAHA), to obtain feedback on proposed changes to the Reimbursement Plan.

The Division's goals in amending the Reimbursement Plan were to stay within its appropriation and to avoid affecting the patient care and ancillary cost components, which were most directly related to the cost of patient care. The Division also did not want to pay for empty nursing facility beds. The Division examined various changes to the Plan and the impact that each scenario would have on the nursing facilities. Scenarios examined by the Division included the elimination of trend factors and a pro rata reduction of rates. While those options would have kept Medicaid payments within the appropriation, the Division rejected them because they would have affected the patient care and ancillary cost components. The Division also examined amending the minimum utilization percentages. It considered different combinations of 0, 73, and 85% for the capital and administration cost components and the possibility of pegging the minimum utilization percentages to the current occupancy levels in the state. Based on its analysis of the different scenarios and the Division's experience with an 85% minimum utilization adjustment from 1995 until 2004, the Division ultimately concluded that increasing the minimum utilization percentages of the capital and administration cost components best met its goals.

On or about March 21, 2005, the Division filed an emergency amendment to its nursing home reimbursement regulation, 13 CSR 70–10.015. The March 21 amendment provided that the Medicaid per diem reimbursement rate for nursing facilities would be rebased effective April 1, 2005, through September 27, 2005, using each facility's 2001 cost report. It also amended the regulation to increase the minimum utilization adjustment for the capital cost component from 73% to 85% and the administration cost component from 0% to 85%. By letters dated March 25, 2005, the Division notified Beverly's nursing facilities of their new rates.

On March 29, 2005, the Division filed a proposed amendment to make the changes in the March 21 emergency amendment permanent and to provide for the calculation of rates for state fiscal year 2006. On or about June 20, 2005, the Division issued another emergency amendment for calculation of per diem reimbursement rates effective July 1, 2005, through December 25, 2005. By order of rulemaking published in the Missouri Register on or about August 15, 2005, the Division promulgated the March 29 proposed amendment to 13 CSR 70–10.015 as a final rule with minor changes.

Each of Beverly's facilities filed a complaint with the AHC regarding their new per diem reimbursement rates effective April 1, 2005, arguing, inter alia, that the March 21 emergenc...