Colorado Health Care Ass'n v. Colorado Dept. of Social Services, No. 85-1016

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before HOLLOWAY, Chief Judge, and BARRETT and SEYMOUR; HOLLOWAY
• Citation: 842 F.2d 1158
• Decision Date: 22 February 1988
• Docket Number: No. 85-1016
• Parties: , Medicare&Medicaid Gu 37,004 COLORADO HEALTH CARE ASSOCIATION; Geriatrics, Inc.; Miller Nursing Home, Inc., d/b/a Fairview Care Center; Springs Village, Inc., d/b/a Springs Village Recovery Center; W II, Inc., d/b/a Glen Ayr Health Center; North Shore Manor, Inc.; and Evergreen Care Centre, Ltd., Plaintiffs-Appellants, v. COLORADO DEPARTMENT OF SOCIAL SERVICES; George S. Goldstein, in his official capacity as Acting Executive Director of the Department of Social Services; Colorado State Board of Social Services; Gilbert R. Slade; Nona Thayer; Felix S. Cordova; Thomas C. Hickman; Mark E. Notestine; Larry Velasquez; Sharon L. Hill; James E. Martin; and Florangel Mendez, in their official capacities as members of the Colorado Board of Social Services; and the State of Colorado, Defendants-Appellees.

Page 1158

842 F.2d 1158 21 Soc.Sec.Rep.Ser. 95, Medicare&Medicaid Gu 37,004 COLORADO HEALTH CARE ASSOCIATION; Geriatrics, Inc.; Miller
Nursing Home, Inc., d/b/a Fairview Care Center; Springs
Village, Inc., d/b/a Springs Village Recovery Center; W II,
Inc., d/b/a Glen Ayr Health Center; North Shore Manor,
Inc.; and Evergreen Care Centre, Ltd., Plaintiffs-Appellants,
v.
COLORADO DEPARTMENT OF SOCIAL SERVICES; George S.
Goldstein, in his official capacity as Acting Executive
Director of the Department of Social Services; Colorado
State Board of Social Services; Gilbert R. Slade; Nona
Thayer; Felix S. Cordova; Thomas C. Hickman; Mark E.
Notestine; Larry Velasquez; Sharon L. Hill; James E.
Martin; and Florangel Mendez, in their official capacities
as members of the Colorado Board of Social Services; and
the State of Colorado, Defendants-Appellees. No. 85-1016. United States Court of Appeals,
Tenth Circuit. Feb. 22, 1988.

Page 1160

Frederick Miles, Miles & McManus, Denver, Colo. (Richard G. McManus, Jr., Miles & McManus, Denver, Colo., was also on the brief), for plaintiffs-appellants.

Wade Livingston, Asst. Atty. Gen., Denver, Colo. (Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen. and Richard H. Forman, Sol. Gen., Denver, Colo., were also on the brief), for defendants-appellees.

Before HOLLOWAY, Chief Judge, and BARRETT and SEYMOUR, Circuit Judges.

HOLLOWAY, Chief Judge.

The plaintiff-appellant Colorado Health Care Association appeals from the dismissal of its complaint which challenged a reduction in reimbursement paid by the State of Colorado (State) to providers of long term nursing services to Medicaid patients.

Page 1161

The services are provided as authorized by Title XIX of the Social Security Act, 42 U.S.C. Secs. 1396 to 1396p and the Colorado Medical Assistance Act (Medicaid), Colo.Rev.Stat. Secs. 26-4-101 et seq.

The association is a not-for-profit corporation comprised of operators of long-term nursing facilities; other appellants are entities who either own, lease, operate or manage such facilities and are certified to provide services under the Colorado Medicaid program (hereinafter "appellants" or "providers"). The appellants challenged the repeated suspension or elimination of the "incentive allowance" component of the daily rate paid by the State to nursing homes which provide services to Medicaid patients. The district court dismissed their complaint. Colorado Health Care Association v. Colorado Dept. of Social Services, 598 F.Supp. 1400 (D.Colo.1984). This timely appeal followed. We find the district court's opinion persuasive and affirm.

I.

A. Colorado Medicaid Reimbursement Plan

The central issue is whether the State's decision to amend its Medicaid plan so as to eliminate the payment of the incentive allowance resulted in violation of the Medicaid standards mandated by the Boren Amendment. Codified within 42 U.S.C. 1396a(a)(13)(A)(1982), the Boren Amendment of 1980 requires that a state reimburse service providers under rates which are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable state and Federal laws, regulations and quality and safety standards. Id. (Effective October 1, 1980). ¹

Under the Colorado Medicaid plan, the State pays certified nursing homes for their services to qualified Medicaid patients on a daily rate, paid per patient per day (PPD). The Colorado Department of Social Services (DSS) is the State agency which administers the Medicaid program. DSS establishes a PPD rate for individual nursing homes. The rate is prospective and based on historical costs for all certified and participating nursing homes for the preceding reporting period of six months. The reimbursement rate is adjusted every six months.

The overall PPD rate for each participant provider is calculated and determined by two components: administration costs and health care costs. Administration costs which are reimbursable or allowable under state law include the expenses incurred with the administration of the nursing home, property, and room and board. Health care costs are not included in the calculation of the incentive allowance at issue. Colo.Rev.Stat. Sec. 26-4-103(4.5).

The administrative costs are the basis for the incentive allowance and are subject to a maximum reimbursement formula or ceiling. ² This ceiling is statutorily defined within "Reasonable cost of services" as "the actual costs of ... administration, property and room and board costs excluding food costs, to the ninetieth percentile of medicaid patients" residing in participating facilities. Id. The reasonable cost or ninetieth percentile is based on the reported costs of medicaid patients in all participating nursing homes in the State. These costs are audited and reviewed in the six-

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months period being used to establish a new rate.

During the times material to this case, the incentive allowance was calculated on the difference between the ceiling rate of 90% and the nursing home's administration cost rate. This incentive factor was further limited in that it could not exceed twelve percent of the ceiling rate, that is, the ninetieth percentile. Added to this incentive allowance is the inflation allowance, based on the consumer price index, which takes into account the increases in costs that occur between the time the costs are incurred and the time the rate is paid. IV R. TR 103-104. The historical costs for administration and health care are subject to the statutory limits on components which will be recognized as reimbursable elements. ³

As to the administration cost, the calculation of that PPD rate can be stated as:

actual costs = PPD
                limited by statute k incentive k inflation (Per Patient rate
                 allowance factor
                ------------------ ------------
                patient days (if costs below (based on paid Daily to
                 -----
                 ninetieth consumer service provider)
                 percentile) price
                 index)
                

If a nursing home's costs exceed the ninetieth percentile costs, then the DSS calculates the rate based upon the ninetieth percentile or reasonable costs rather than the nursing home's actual allowable costs. Colo.Rev.Stat. Sec. 26-4-103 (4.5), and Sec. 26-4-110(5)(a). If a nursing home's actual allowable costs are below the ninetieth percentile, the department will increase the nursing home's rate by adding an incentive allowance to their actual costs. At the times in question here, the incentive allowance was initially calculated as 50 percent and after 1984 as 25 percent ⁴ of the difference between the ninetieth percentile and the nursing home's actual costs. IV R. TR 51-104-106.

B. Administrative and Procedural History

The DSS has at five times adopted a rule which temporarily suspended the payment of the incentive allowance to those nursing homes whose administrative costs were below the ninetieth percentile. Initially, the decision or informal rule suspending this payment was made by the Colorado Board of Social Services (CBSS) within the DSS. After public hearings on January 7, 1983 and February 4, 1983, at its regular meeting on February 4, the CBSS adopted, on an "emergency basis" an amendment to its long-term care reimbursement regulations. This change eliminated payment of the incentive for services rendered from April 1, 1983 to May 30, 1983 and from May 30, 1983 until June 30, 1983 because of a projected $24 million shortage in Medicaid funds. Plaintiffs' Exh. 1. The State stipulated that the denial of this component of the PPD was "due strictly to a 'lack of available appropriations.' " I R. 127, p 4.

The appellants filed this suit in state court and the case was removed to federal court on the appellees' petition; jurisdiction arises from the federal question, pursuant to 28 U.S.C. Secs. 1331, 1441. I R. 1-23. Subsequently, the Governor of Colorado approved a supplemental appropriation act which made funds available to pay the incentive allowance. Plaintiffs' Exh. 3, S.B. 273. In S.B. 273, $755,662 was appropriated

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from general funds with the purpose as stated: "Restores one-half of the nursing home incentive payment for the last half of the year [1982-1983, the 1983 fiscal year]." Plaintiffs' Exh. 4 at line 22.

After the Governor's signing of S.B. 273, the DSS adopted an emergency regulation which reinstated the incentive allowance. Under this amendment to the rule adopted on February 4, the DSS informed providers that it would reimburse them for "up to 62 days of foregone incentive." Plaintiffs' Exh. 6. Thereafter, the parties executed a stipulation which was approved by the district court providing for the reinstatement of payments to the appellants.

The second suspension of the incentive payment occurred after the Governor vetoed the appropriation for the incentive allowance in the general appropriation bill for fiscal year 1983-84. This appropriation was to pay the incentive which remained unpaid for 1982-83. Plaintiffs' Exh. 8, S.B. 401. DSS did not pay the incentive allowance beyond the 62 day period, supra, and notified providers that the incentive allowance would not be paid for the period from April 6 to June 30, 1983. Plaintiffs' Exh. 9. A fiscal year commenced on July 1, with Medicaid appropriations for 1983-1984, the 1984 fiscal year.

On July 18 and 19, 1983, a hearing was held on appellants' motion for an order to show cause why the DSS should not pay the incentive allowance for the last portion of 1983 fiscal year. Upon conclusion of the hearing, the parties agreed to consolidate it with a trial on the merits pursuant to Rule 65(a)(2), Fed.R.Civ.P.

On May 4, 1984 the CBSS suspended the incentive payment for the third time, enacting an emergency rule in order to "only pay the incentive allowance to nursing homes with available appropriations specifically appropriated" for this purpose. II R. 249, Supplemental Complaint, Exh. A at...