CHS-Lake Erie, Inc. v. Ohio Dep't of Medicaid
| Decision Date | 13 February 2020 |
| Docket Number | No. 18AP-897,18AP-897 |
| Citation | 2020 Ohio 505,145 N.E.3d 335 |
| Parties | CHS-LAKE ERIE, INC. et al., Appellants-Appellees/Cross-Appellants, v. OHIO DEPARTMENT OF MEDICAID, Appellee-Appellant/Cross-Appellee. |
| Court | Ohio Court of Appeals |
On brief: Webster & Associates, Co., LPA, and Geoffrey E. Webster, Columbus, for appellees/cross-appellants. Argued: Geoffrey E. Webster.
On brief: Dave Yost, Attorney General, and Rebecca L. Thomas, for appellant/cross-appellee. Argued: Rebecca L. Thomas.
DECISION
BEATTY BLUNT, J.
{¶ 1} Appellant/cross-appellee, the Ohio Department of Medicaid (the "department") 1 appeals from a judgment of the Franklin County Court of Common Pleas affirming in part and reversing in part the department's adjudication order determining that appellees/cross-appellants, CHS-Glenwell, Inc. (dba Glen Meadows), CHS-Glenwell, Inc. (dba Wellington Manor), CHS-Greater Cincinnati, Inc. (dba East Galbraith Health Care Center ("East Galbraith")), CHS-Lake Erie, Inc. (dba Carington Park), CHS-Miami Valley, Inc. (dba Vandalia Park), CHS-Miami Valley, Inc. (dba Franklin Ridge), and CHS-Ohio Valley, Inc. (dba Terrace View Gardens) (collectively, "CHS"2 or "the facilities") owed the department $11,111,557.96 in Medicaid provider overpayments. For the reasons which follow, we affirm in part and reverse in part the judgment of the common pleas court.
{¶ 2} CHS operates long-term care facilities, providing room, board, and nursing services to persons eligible for benefits under Ohio's Medicaid program. Pursuant to R.C. Chapter 51113 and Title XIX of the Social Security Act, the department administers the Medicaid program in Ohio.
{¶ 3} In 2009, the department issued proposed adjudication orders to CHS. The proposed adjudication orders informed CHS that the department intended to implement the findings of final fiscal audits, which demonstrated that CHS had received an overpayment of Medicaid funds. CHS timely requested R.C. Chapter 119 hearings on the proposed adjudication orders. The department consolidated the matter into a single proceeding and appointed a hearing examiner.
{¶ 4} The department conducted two types of audits in this case: cost report audits and days audits. In the cost report audits, the department audited the calendar year4 2003 cost reports filed by Carington Park, Terrace View Gardens, Vandalia Park, and Franklin Ridge; the six-month cost report filed by East Galbraith covering July 1 to December 31, 2003; and the three-month cost reports filed by Glen Meadows and Wellington Manor covering December 1, 2003 to February 29, 2004. The hearing examiner referred to all the cost reports as the 2003 cost reports.
{¶ 5} Nursing facilities report their yearly operating costs to the Medicaid program through cost reports. Nursing facilities prepare cost reports using the accrual basis of accounting. The 2003 cost reports contained separate cost centers for direct care costs, indirect care costs, capital costs, and other protected costs.
{¶ 6} From fiscal year5 1994 to fiscal year 2005, Ohio used a nursing facility's calendar year cost report to establish the facility's per diem rate for the subsequent fiscal year. For example, the calendar year 1994 cost report established the per diem rate for fiscal year 1996, and the calendar year 1995 cost report established the per diem rate for fiscal year 1997. Bryant Health Care Ctr. v. Ohio Dept. of Job & Family Servs. , 10th Dist. No. 13AP-263, 2014-Ohio-92, 2014 WL 117424, ¶ 6. Thus, the facilities' calendar year 2003 cost reports established the facilities per diem rates for fiscal year 2005. The per diem rate was the amount the facility received per resident per day. Id. at ¶ 5.
{¶ 7} In the days audits, the department reviewed the days the facilities were paid for rendering services to Medicaid recipients ("patient days") and reviewed the funds the facilities collected from their Medicaid recipients ("patient liability"). In reviewing the patient days, the department sought to determine whether the facilities actually provided each resident care for the number of days the facility claimed to have provided such care. See Clifton Care Ctr. v. Ohio Dept. of Job & Family Servs. , 10th Dist., 2013-Ohio-2742, 994 N.E.2d 879, ¶ 15 ; Meadowbrook Care Ctr. v. Ohio Dept. of Job & Family Servs. , 10th Dist. No. 06AP-871, 2007-Ohio-6534, 2007 WL 4285145, ¶ 14. In reviewing the patient liability amounts, the department assessed whether CHS had collected the proper amount of contribution from each resident. Medicaid recipients may be required to contribute to the cost of their care depending on their income, and the difference between "the individual's patient liability and the monthly medicaid cost of care is the medicaid vendor payment amount." Ohio Adm.Code 5101:1-39-22.2(B). The department audited the patient days and patient liability amounts for the following facilities during the following fiscal years: Carington Park, Terrace View Gardens, Vandalia Park, Franklin Ridge, and East Galbraith for 2003, 2004, 2005, and 2006; Glen Meadows for 2004, 2005, and 2006; and Wellington Manor for 2005 and 2006.
{¶ 8} The hearing before the department proceeded in two phases. Phase one concerned the threshold issue of whether the department, acting through the auditing firm Clifton Gunderson, had conducted qualifying audits of CHS's 2003 cost reports. The phase one hearings occurred on September 28, September 29, and October 5, 2009. The hearing examiner concluded the department had conducted audits of the 2003 cost reports.
{¶ 9} Phase two concerned the merits of the department's proposed audit adjustments under both the cost report audits and the days audits. The phase two hearings occurred on December 10 and 11, 2012, and January 22, January 23, January 24, April 8, April 9, April 10, and May 17, 2013. One of the issues addressed at the phase two hearings was the department's disallowance of certain consulting costs from the 2003 cost reports based on the liquidation of liabilities rule. Prior to the start of the phase two hearings, CHS filed a motion in limine seeking to block all evidence and testimony relating to the liquidation of liabilities rule. The hearing examiner denied CHS's motion.
{¶ 10} The consulting costs at issue concerned some of the facilities contracts with Strategic Nursing Systems, Inc. ("Strategic") and Providers Choice Administrative Services, Inc. ("Providers Choice"). The parties stipulated that Carington Park, Terrace View Gardens, Franklin Ridge, Vandalia Park, and East Galbraith contracted with Strategic for direct care consulting services in 2003. The parties stipulated that Carington Park, Terrace View Gardens, Franklin Ridge, Vandalia Park, and East Galbraith contracted with Providers Choice for indirect care consulting services in 2003. The noted facilities reported their costs from Strategic and Providers Choice on their 2003 cost reports. Although the parties did not enter into any stipulations regarding Glen Meadows and Wellington Manor, these facilities reported costs related to Strategic on their three-month cost reports.
{¶ 11} Carington Park, Terrace View Gardens, Franklin Ridge, and Vandalia Park entered into yearlong contracts with both Strategic and Providers Choice beginning on January 1, 2003. East Galbraith entered into six-month contracts with Strategic and Providers Choice beginning on July 1, 2003. The contracts with both Strategic and Providers Choice provided for annual services ("Annual Services") and stated that the fees for the Annual Services would be payable in monthly installments. The monthly invoices issued throughout 2003 pursuant to the Annual Services portions of the contracts stated the invoices were "due upon receipt of invoice." (State's Ex. 58, 64, 93, 99, 120, 126, 155, 158, and 182.) The facilities paid the Annual Services monthly invoices by check.
{¶ 12} The contracts between Carington Park, Terrace View Gardens, Franklin Ridge, East Galbraith, and Strategic, as well as the contracts between Carington Park, Terrace View Gardens, Franklin Ridge, Vandalia Park, East Galbraith, and Providers Choice, also contained attachments providing for additional enhanced services ("Enhanced Services"). The attachments stated that the entire fee for the Enhanced Services would be invoiced to the facilities on December 31, 2003. The noted facilities issued promissory notes to Strategic and Providers Choice on December 31, 2003 as payment for the Enhanced Services fees.
{¶ 13} The December 31, 2003 promissory notes issued from the facilities to Strategic stated the unpaid principal and accrued interest would be payable in monthly installments beginning August 1, 2005. The December 31, 2003 promissory notes issued from the facilities to Providers Choice stated the unpaid principal and accrued interest would be payable in monthly installments beginning February 1, 2005. The facilities paid the promissory notes pursuant to their terms and, thus, did not make payments on the notes until 2005.
{¶ 14} Following its initial audit of CHS, Clifton Gunderson disallowed the Strategic and Providers Choice costs from the 2003 cost reports due to lack of documentation and a suspected related party issue.6 After CHS produced documentation during discovery to support the Strategic and Providers Choice costs, the auditors identified the liquidation of liabilities issue. At the beginning of the phase two hearings, the parties stipulated that the department would proceed on the liquidation of liabilities issue as the proposed basis for disallowance of the consulting costs.
{¶ 15} Emily Hess, a senior manager at Clifton Gunderson who oversaw the CHS audit, explained there was a hierarchy of authorities the auditors used to determine what costs were allowable on the 2003 cost reports. The hierarchy, contained in Ohio Adm.Code 5101:3-3-01(A), consisted in order of authority of the Ohio Revised Code,...
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