Community Care Centers, Inc. v. Sullivan

• Decision Date: 17 November 1998
• Docket Number: No. 18A04-9708-CV-354,18A04-9708-CV-354
• Citation: 701 N.E.2d 1234
• Parties: COMMUNITY CARE CENTERS, INC., New Horizons Developmental Center, Myron Bradburn and Bonita J. Bradburn, Appellants-Defendants, v. Cheryl SULLIVAN in her capacity as Secretary of Family and Social Services Administration, and James M. Verdier in his capacity as Director of the Office of Medicaid Policy and Planning, Family and Social Services Administration Appellees-Plaintiffs.
• Court: Indiana Appellate Court

Page 1234

701 N.E.2d 1234

COMMUNITY CARE CENTERS, INC., New Horizons Developmental Center, Myron Bradburn and Bonita J. Bradburn Appellants-Defendants, v. Cheryl SULLIVAN in her capacity as Secretary of Family and Social Services Administration, and James M. Verdier in his capacity as Director of the Office of Medicaid Policy and Planning, Family and Social Services Administration Appellees-Plaintiffs.

No. 18A04-9708-CV-354.

Court of Appeals of Indiana.

Nov. 17, 1998.

Gregory A. Huffman, DeFur Voran Hanley Radcliff & Reed, Muncie, William P. Tedards, Jr., Washington, DC, for Appellants-Defendants.

Jeffrey A. Modisett, Attorney General, Jon Laramore, Deputy Attorney General, Indianapolis, for Appellees-Plaintiffs.

OPINION

MATTINGLY, Judge.

Community Care Centers, Inc., New Horizons Developmental Center, and Myron and Bonita Blackburn, the owners of the facilities during the period at issue, (collectively referred to as Community Care) appeal the summary judgment entered against them and in favor of Cheryl Sullivan in her capacity as Secretary of the Indiana Family and Social Services Administration and James Verdier in his capacity as the Indiana Director of Medicaid Policy and Planning, Family and Social Services Administration (collectively referred to as the State). We consolidate and restate the issues Community Care raises on appeal as:

1. Whether the remedy of restitution based on the reversal of a judgment can properly be granted on summary judgment without consideration of whether a health care provider was unjustly enriched as a result of the judgment which was reversed;

2. Whether a trial court can properly find unjust enrichment as a matter of law when a health care provider is reimbursed by the State pursuant to an injunction which is later reversed but when the reimbursement rates paid by the State under the injunction still do not reimburse the provider for its reasonable costs;

3. Whether the State is barred by the doctrine of "unclean hands" from seeking equitable relief from the only provider who benefitted from an injunction when it declines to seek restitution from other providers who benefitted from a different order enjoining a rule that was never applied to any provider; and

4. Whether the State's action for restitution arising from its reimbursement contract with a provider can be properly allowed to proceed when the provider's unjust enrichment counterclaim is dismissed on grounds that the parties' rights were determined by the express contract between them.

We affirm.

FACTS AND PROCEDURAL HISTORY

The Medicaid program is jointly administered by the state and federal governments and provides a mechanism to reimburse certain participating health care providers for nursing home care and other services to Medicaid beneficiaries. Community Care participated in the program and operated a number of facilities which provided such services. Medicaid providers are reimbursed pursuant to provider contracts entered into with the State, in accordance with State regulations. This action arises out of two challenges Community Care mounted to the State's reimbursement of some of the Community Care facilities.

1. The Blackford Injunctions

In an action brought in the Blackford Circuit Court, Community Care sought, and was granted, injunctions against the use of two "limiters" that were applied by the State in determining Medicaid reimbursement rates. See Indiana Bd. of Pub. Welfare v. Tioga Pines, 622 N.E.2d 935 (Ind.1993). One limiter, the Gross National Product implicit price deflator (GNP/ipd), generally limited reimbursement increases to the rate of inflation. The other limiter, the "tests of reasonableness," had the effect of limiting a provider's budgeted cost increases which were out of line with that same provider's prior years' expenses and with the costs incurred by other providers. Id. at 941-42.

The injunctions prohibited the State from using the GNP/ipd limiter as the sole determinant ¹ of a provider's reimbursement rate and from using two aspects of the "tests of reasonableness." Specifically, the State was enjoined from comparing facilities without regard to the size of the facilities and from making line item comparisons of facilities. In response to the injunctions, the State recalculated Community Care's rates pursuant to those state regulations which had not been enjoined, ² using limiters other than the GNP/ipd and the two enjoined aspects of the "tests of reasonableness." The Community Care facilities operated at a loss during the pendency of the injunctions despite the recalculation of the reimbursement rates. Our supreme court reversed the injunctions in Tioga Pines, holding that the "use of the GNP/ipd as a maximum annual rate limiter and the tests of reasonableness were not improper." 622 N.E.2d at 946.

2. The Federal District Court Injunction

The second action in which Community Care obtained an injunction against the State was filed on behalf of Community Care's Hamilton Heights ³ facility and some of its residents. At the time that action was brought, the Medicaid program classified long-term care facilities into three categories: intermediate care facility (ICF), skilled nursing facility (SNF), and intermediate care facility for the mentally retarded (ICF/MR). ICF standards were less rigorous than those governing ICF/MRs, and ICF facilities were reimbursed at a lower rate.

In 1984, the Indiana State Board of Health established "Rule 7," a level of care between ICF and ICF/MR. Hamilton Heights housed about 90 mentally retarded and developmentally disabled patients and was designated as a Rule 7 ICF. Rule 7 facilities had to meet more stringent requirements than ICFs; in particular, they were required to provide additional staff training and to provide a program which satisfied certain requirements for the developmentally disabled residents. This, Hamilton Heights maintained, increased its costs over those incurred by an ICF. If a Rule 7 facility did not meet the more stringent standards, it could be subject to decertification.

Because the federal Medicaid program recognized no categories between ICF and ICF/MR, and because Hamilton Heights had not been certified as an ICF/MR, ⁴ Hamilton Heights was being reimbursed at the lower ICF rates. It sought and obtained an injunction in the federal district court for the Southern District of Indiana ordering the State to reset Hamilton Heights' reimbursement rate at a level equal to its documented cost rate between January 1, 1989 and July 6, 1990. The district court found that, although it cost Hamilton Heights about $82.90 per day to deliver its services to each patient, the facility was being reimbursed only $47.40 per patient per day. The district court also found that the facility's costs were reasonable, that it delivered its services "efficiently and economically," and that there was no evidence that it provided any excessive or unnecessary services. R. at 1599.

In Lett v. Magnant, 965 F.2d 251 (7th Cir.1992), the Seventh Circuit reversed the injunction on grounds the district court had improperly applied the language of the reimbursement standard in effect prior to the enactment of the federal Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A). The original Medicaid Act required states to reimburse facilities for their "reasonable" costs in providing care. The Boren Amendment replaced the "reasonable cost" standard, under which providers were paid for the reasonable costs of services actually provided, with a system of prospective rate setting, under which rates for various types of services and procedures were paid in advance. Noting that the primary purpose of the Boren Amendment was cost containment, the Seventh Circuit held that "a state's inadequate reimbursement of one efficiently and economically operated facility does not necessarily constitute a Boren amendment violation." Id. at 256. In reversing the injunction, the Seventh Circuit held it was "neither arbitrary and capricious nor unreasonable for the Indiana DPW to require Hamilton Heights to be certified as an ICF/MR in order to receive enhanced reimbursement rates." Id. at 261.

3. Restitution Action

After the Blackford and Southern District injunctions were reversed on appeal, the State brought the present action for restitution in the Delaware Superior Court. That court determined on summary judgment that the State was entitled as a matter of law to recover "the difference between the sums paid to Community Care under the erroneous injunctions and the amounts it would have received under the State's lawful rate-setting methodology in the absence of the injunctions." R. at 938. Community Care appeals the trial court's grant of summary judgment to the State.

Community Care also appeals the dismissal of a counterclaim it filed with regard to the Hamilton Heights facility seeking additional reimbursement from the State on an unjust enrichment theory.

STANDARD OF REVIEW

In reviewing the grant of a summary judgment motion, we apply the same standard applicable in the trial court. Summary judgment is proper only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). We do not weigh the evidence, but will consider the facts in the light most favorable to the non-moving party. Grose v. Bow Lanes, Inc., 661 N.E.2d 1220, 1224 (Ind.Ct.App.1996). We must reverse the grant of a summary judgment motion if the record discloses an incorrect application of the law to those facts. Ayres v. Indian Heights Volunteer Fire Dep't, Inc., 493 N.E.2d 1229, 1234 (Ind.1986). On appeal from a grant of summary judgment, the burden is on the appellant to prove the trial court erred in determining there were no genuine issues of material fact and that the moving party was entitled to judgment as a matter of law. Welch v. Scripto-Tokai Corp., 651 N.E.2d 810, 813 (Ind.Ct.App.1995). We...