Drake Ctr., Inc. v. Ohio Dept. of Human Serv.

• Decision Date: 24 March 1998
• Docket Number: 97API05-678 and 97API05-679,Nos. 97API04-595,s. 97API04-595
• Citation: 709 N.E.2d 532,125 Ohio App.3d 678
• Parties: DRAKE CENTER, INC., Appellant, v. OHIO DEPARTMENT OF HUMAN SERVICES, Appellee.
• Court: Ohio Court of Appeals

Page 678

125 Ohio App.3d 678

709 N.E.2d 532

DRAKE CENTER, INC., Appellant, v. OHIO DEPARTMENT OF HUMAN SERVICES, Appellee.

Nos. 97API04-595, 97API05-678 and 97API05-679.

Court of Appeals of Ohio Tenth District, Franklin County.

Decided March 24, 1998.

Geoffrey E. Webster, and Norman J. Frankowski II, Columbus, for appellant.

Betty D. Montgomery, Attorney General, Peter E. DeMarco and Peggy Corn, Assistant Attorneys General, Columbus, for appellee.

DESHLER, Presiding Judge.

This is an appeal by plaintiff, Drake Center, Inc., from a judgment of the Ohio Court of Claims, finding in part that Ohio's system for establishing reimbursement rates under the Medicaid program did not violate applicable federal and state law provisions.

The Drake Center, located in Hamilton County, is a nonprofit health care organization, providing hospital and nursing facility services. Drake Center has three hundred thirty-six beds, including two hundred fifty-six skilled nursing beds, and the facility participates in the state's Medicaid assistance program. Defendant, the Ohio Department of Human Services ("ODHS"), is the designated state agency charged with administering the state Medicaid program. Pursuant to a "provider agreement" between ODHS and Drake Center, ODHS makes payments to the facility for residents eligible for services under the Medicaid assistance program.

On June 30, 1995, Drake Center filed a complaint for mandatory injunctive and declaratory relief and damages, challenging the medical reimbursement rates established by the state. Specifically, Drake Center alleged that it was an "efficient and economical" provider of care and services and that it had timely filed cost reports and other information with ODHS detailing costs incurred in caring for residents at its facility. It was averred that "[t]he current rate of reimbursement calculated for Plaintiff and paid by the Defendant is not reasonable and adequate to meet the Plaintiff's reasonable and necessary costs of delivering the services mandated by state and federal law." Drake Center further alleged that the state had a mandatory duty to calculate a prospective rate for Drake Center as a provider of "outlier" services pursuant to R.C. 5111.257 and Ohio Adm.Code 5101:3-3-25.

The matter was tried before a judge of the Ohio Court of Claims over a three-week period. On April 1, 1997, the Court of Claims rendered a decision, finding that the state plan did not violate the Boren Amendment. The Court of Claims further found that Drake Center was not an efficiently and economically operated facility and that the state's assessment tool adequately measured the service needs of long-term-care facilities, including Drake Center.

Drake Center subsequently filed a request for separate findings of fact and conclusions of law, as well as a motion for new trial. The Court of Claims denied the request for separate findings of fact and conclusions of law and overruled Drake Center's motion for new trial.

On appeal, Drake Center sets forth the following assignments of error for review:

"Assignment of Error No. 1 "The trial court erred as a matter of law in holding that ODHS complied with the Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A) and its implementing regulations.

"Assignment of Error No. 2

"The trial court erred as a matter of law in holding that ODHS complied with R.C. § 5111.257 and the regulations promulgated thereunder.

"Assignment of Error No. 3

"The trial court erred as a matter of law in holding that ODHS did not violate the state and federal constitutional rights of Drake Center, Inc.

"Assignment of Error No. 4

"The trial court erred as a matter of law in holding that ODHS did not breach the provider agreement to which it is a party with Drake Center, Inc.

"Assignment of Error No. 5

"The trial court erred as a matter of law in holding that Drake Center, Inc. was not entitled to judgment on its quasi-contractual and promissory estoppel claims.

"Assignment of Error No. 6

"The trial court erred as a matter of law in holding that Drake Center, Inc. was not entitled to judgment on its equitable claims.

"Assignment of Error No. 7

"The trial court erred as a matter of law when it failed to consider the rebuttal evidence of Drake.

"Assignment of Error No. 8

"The trial court [erred] as a matter of law when it failed to adopt findings of fact and conclusions of law at the request of plaintiff.

"Assignment of Error No. 9

"The trial court erred as a matter of law when it failed to grant Drake a new trial."

Medicaid is a cooperative federal-state program through which the federal government provides financial assistance to states so that they may furnish medical care to needy individuals. Wilder v. Virginia Hosp. Assn. (1990), 496 U.S. 498, 499-502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455, 461-462, citing Section 1396, Title 42, U.S.Code. Although participation in the Medicaid program is voluntary, states that participate must comply with certain requirements imposed by the Medicaid Act ("Act") and regulations imposed by the Secretary of Health and Human Services. Wilder, supra, at 502, 110 S.Ct. at 2513, 110 L.Ed.2d at 462. Thus, to qualify for federal assistance, a state is required to submit to the secretary and have approved a plan for medical assistance "to establish, among other things, a scheme for reimbursing health care providers for the medical services provided to needy individuals." Id.

When originally enacted in 1965, the Act required states to provide reimbursement of the "reasonable cost" of hospital services actually provided. Id. Thus, "providers were paid for their actual costs incurred, regardless of disparities in costs or efficiencies among providers." Madrid Home for Aging v. Iowa Dept. of Human Serv. (Iowa 1996), 557 N.W.2d 507, 511. However, "[t]his 'retrospective' process of payment proved over time to be inherently inflational and contained no incentives for efficient performance." Id.

In 1980, in response to these concerns, Congress enacted the Boren Amendment to the Social Security Act, which changed the standard for reimbursement of nursing and intermediate care facilities. Id. The Boren Amendment provides that a state plan for medical assistance must:

"[P]rovide * * * for payment * * * of the hospital services, nursing facility services, and services in an intermediate care facility for the mentally retarded provided under the plan through the use of rates (determined in accordance with methods and standards developed by the State * * *) which the State finds, and makes assurances satisfactory to the Secretary, 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 and to assure that individuals eligible for medical assistance have reasonable access * * * to inpatient hospital services of adequate quality * * *." Section 1396a(a)(13)(A), Title 42, U.S.Code.

In considering the above language of the Boren Amendment, the United States Supreme Court in Wilder noted that "[t]he Act does not define these terms, and the Secretary has declined to adopt a national definition, concluding that States should determine the factors to be considered in determining what rates are 'reasonable and adequate' to meet the costs of 'efficiently and economically operated facilit[ies].' " Wilder, supra, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 465.

Thus, the Boren Amendment was enacted with the purpose of giving states "greater flexibility in calculating reasonable costs and in containing the continuing escalation of those costs." Folden v. Washington State Dept. of Social & Health Serv. (C.A.9, 1992), 981 F.2d 1054, 1056. Further, "[t]he Boren Amendment allows the states to adopt a 'prospective' rate-setting system, which sets out a predetermined rate that the provider will receive and, thus, encourages the provider to meet that rate or to absorb the loss if the provider's actual costs exceed that rate." Id.

In July 1993, Ohio implemented a reimbursement plan that utilizes a "prospective case-mix system." Ohio's method for establishing the total prospective rate for nursing facilities takes into consideration a combination of allowable per diems established for direct-care costs, "other protected" costs, indirect-care costs, and capital costs. Ohio Adm.Code 5101:3-3-43(A).

Under the state's case-mix reimbursement system, payment for direct services is adjusted "by identifying resident characteristics associated with actual measured resource use," taking into account the fact that "some residents are more costly to care for than others due to their different care needs." Ohio Adm.Code 5101:3-3-40. The direct-care cost component of the system is established through a methodology for grouping residents under the designation of "resource utilization groups, version III" ("RUGs III"), developed through the United States Health Care Financing Administration ("HCFA") multistate nursing home case-mix and quality demonstration project. Ohio Adm.Code 5101:3-3-41(B).

RUGs III is composed of seven categories of resident types (extensive services, special rehabilitation, special care, clinically complex, impaired cognition, behavior problems, and reduced physical functioning) from which forty-four RUGs III groups are classified. Ohio Adm.Code 5101:3-3-41(B). The RUGs III categories are "listed in descending order of hierarchy." Id.

The forty-four different groups under RUGs III are based on patient characteristics. Ohio Adm.Code 5101:3-3-41(F). A patient's classification into a resource utilization group is accomplished through the "minimum data set plus" (hereafter "MDS+"), a "core set of items that makes up the resident assessment instrument selected by Ohio." Ohio Adm.Code 5101:3-3-40(A)(12). All MDS+ data elements related to...