Blinzinger v. Americana Healthcare Corp., 2-1083

• Docket Nº: No. 2-1083
• Citation: 466 N.E.2d 1371
• Case Date: August 13, 1984
• Court: Court of Appeals of Indiana

Page 1371

466 N.E.2d 1371 Medicare & Medicaid Guide P 34,147 Donald BLINZINGER, Administrator, Indiana Dept. of Public
Welfare, Indiana Dept. of Public Welfare,
Appellants (Defendants Below),
v.
AMERICANA HEALTHCARE CORPORATION, Elkhart-Americana, Inc.,
d/b/a Americana Healthcare Center of Elkhart, Capitol
Americana, Inc., d/b/a Americana Healthcare Center of
Indianapolis-Midtown, Appellees (Plaintiffs Below). No. 2-1083 A 359. Court of Appeals of Indiana,
Second District. Aug. 13, 1984.

Page 1372

Linley E. Pearson, Atty. Gen., Gordon E. White, Jr., Deputy Atty. Gen., Indianapolis, for appellants.

David F. McNamar, John H. Sharpe, Steers, Sullivan, McNamar & Rogers, Indianapolis, for appellees.

SULLIVAN, Judge.

This is an appeal from a judicial review proceeding in which Americana Healthcare Centers of Elkhart and Indianapolis-Midtown challenged the decision of the Indiana Department of Public Welfare (DPW) denying their requests for increased Medicaid reimbursement rates. The trial court reversed DPW's determination.

Upon appeal, DPW presents the following issues:

(1) Whether the trial court erred in determining that the DPW decision (rate freeze directive) to take no action upon rate increase requests from healthcare facilities undergoing decertification proceedings was an unpromulgated rule and without effect;

(2) Whether DPW lacked authority, by reason of 42 Code of Federal Regulations 442.12(a) and 441.11(b), to grant rate increases to a healthcare provider undergoing decertification proceedings;

(3) Whether the trial court erred in determining that the rate freeze directive was not within the discretionary power of DPW, pursuant to I.C. 12-1-2-3(f);

(4) Whether the trial court improperly exercised a mandate power in ordering DPW to reconsider Americana's request for rate increases; and

(5) Whether the trial court erred in ordering DPW to reimburse Americana for the cost of preparation and filing of the administrative record of proceedings.

Americana Healthcare Centers (Americana), owns and operates healthcare and nursing home facilities throughout the United States. In October of 1980, two of its facilities in Indiana--Americana Healthcare Center of Elkhart and Americana Healthcare Center of Indianapolis-Midtown--received notice of impending decertification as qualified healthcare providers under the Medicare and Medicaid programs. Upon receipt of notification, the two Americana centers petitioned both

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state and federal administrative authorities for a pre-decertification administrative hearing. Both the United States Department of Health and Human Services (HHS), which administers the Medicare Program, and the Indiana Department of Public Welfare (DPW), which administers the Medicaid Program, denied Americana's request for pre-decertification hearings, whereupon Americana sought injunctive relief in the United States District Court for the Southern District of Indiana to enjoin the decertification of the two facilities until such time as hearings were held and an administrative adjudication rendered.

In January, 1981, Judge Dillin of the U.S. District Court for the Southern District of Indiana issued a preliminary injunction prohibiting HHS and DPW from decertifying either of the facilities as Medicare or Medicaid providers and from withholding or delaying the processing of claims or reimbursement of funds from Medicare or Medicaid. Following the issuance of the preliminary injunction, which was later reversed on appeal by the Seventh Circuit Court of Appeals, the Americana facilities submitted to DPW several routine requests for adjustments in the rates for reimbursement paid them through the Medicaid program. ¹ DPW regulations permit a Medicaid facility to submit requests twice yearly for adjustments in the Medicaid rates for services rendered to Medicaid patients. 470 I.A.C. 5-4-4. The regulations specify conditions which justify rate increases. One such condition is increased costs to the facility in providing care to Medicaid patients. Each of Americana's requested rate increases were deferred by DPW due to the pending decertification of the two facilities as Medicaid providers.

Americana was informed by Blue Cross-Blue Shield of Indiana, DPW's agent for administering the Medicaid program, that its requests for rate increases were being "held pending resolution of the certification situation ... in accordance with an August 1st, 1980 directive from R.F. Smith to take no action on rate increases for any nursing homes under possible decertification circumstances." Record at 281. Americana then requested and was granted an administrative DPW hearing concerning the agency's refusal to grant a rate increase due to the pending decertification. The hearing officer issued findings of fact, conclusions of law, and recommendations adverse to Americana. Insofar as is pertinent to the issues presented, the hearing officer determined, as fact, the following:

"1. The directive of August 1, 1980, applied to any nursing home subject to decertification, and it deferred action on any rate increase for such home from its receipt of a decertification notice until the conclusion of any hearing held pursuant to such notice.

2. The hearings requested by Petitioners were delayed initially as the result of decertification proceedings instituted by the Department of Health and Human Services, and they have since been prohibited by preliminary injunction issued January 29, 1981, on Petitioner's complaint." Record at 302.

Based upon these findings, the hearing officer concluded, as a matter of law, that the rate freeze directive was not an unpromulgated rule within the meaning of I.C. 4-22-2, because

(a) the directive pertained only to nursing homes in the process of an administrative adjudication and therefore, was part of and subject to the administrative adjudicatory proceeding involving decertification; and

(b) the directive fell within the discretionary powers of the agency, pursuant to I.C. 12-1-2-3(f) to "take such action as may be deemed necessary or desirable to carry out the provisions of this act." Record at 302.

The hearing officer's findings, conclusions, and recommendation were subsequently adopted by the DPW Board,

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prompting Americana to seek judicial review.

The reviewing court reversed DPW's decision. It concluded that the rate freeze directive was a rule within the meaning of I.C. 4-22-2-1, and as such was unpromulgated and without effect. It further found that the hearing officer erred in concluding that DPW's refusal to grant a rate increase, as per the directive, was justified as an exercise of discretionary power under I.C. 12-1-2-3(f). The court denied Americana's request for an order of mandate to require DPW to reimburse Americana at a court-established rate, and remanded the matter to DPW directing DPW to

"consider and determine the increase in rates requested by the plaintiffs with all due haste in order to minimize any further damages which may have accrued as a result of the agency's unlawful refusal to consider the request for increase of the rates of Medicaid reimbursement to be paid to the plaintiffs and determine the amounts due and owing plaintiff, if any, by reason of this wrongful refusal to consider the plaintiffs' request for an increase in rates." Record at 166.

I.

NATURE OF DPW DIRECTIVE

The principal issue presented for review is whether the directive of the Indiana Department of Public Welfare relating to rate freezes for healthcare providers involved in decertification proceedings is an unpromulgated rule, an administrative adjudication, or an agency decision relating solely to internal policy and procedure. Americana argues that the reviewing court was correct in determining that the directive was an unpromulgated rule and, as such, without effect. DPW maintains that the directive is either an integral part of an administrative adjudication, or an internal policy or procedural decision within the discretionary authority of the agency.

Section 3 of the Administrative Rulemaking Act, I.C. 4-22-2-3 (Burns Code Ed., 1984 Supp.) defines "rule" as follows:

"(b) 'Rule' means any rule, regulation, standard, classification, procedure, or requirement of any agency, designed to have or having the effect of law or interpreting, supplementing, or implementing any statute. The term...