Grace at Twin Falls, LLC v. Jeppesen

• Docket Number: Docket No. 49067
• Decision Date: 03 November 2022
• Citation: 519 P.3d 1227
• Parties: GRACE AT TWIN FALLS, LLC, an Idaho limited liability company, Petitioner-Appellant, v. Dave JEPPESEN, in his official capacity as Director of the Idaho Department of Health and Welfare, and the Idaho Department of Health and Welfare, an executive department of the state government, Respondents.
• Court: Idaho Supreme Court

519 P.3d 1227

GRACE AT TWIN FALLS, LLC, an Idaho limited liability company, Petitioner-Appellant,

v.Dave JEPPESEN, in his official capacity as Director of the Idaho Department of Health and Welfare, and the Idaho Department of Health and Welfare, an executive department of the state government, Respondents.

Docket No. 49067

Supreme Court of Idaho, Boise, August 2022 Term.

Opinion Filed: November 3, 2022

Davison, Copple, Copple & Copple, LLP, Boise, for Appellant.

Lawrence G. Wasden, Idaho Attorney General, Boise, for Respondent.

BEVAN, Chief Justice.

This appeal arises from a district court decision affirming a declaratory ruling issued by Respondent Dave Jeppesen (the Director) in his capacity as Director of the Idaho Department of Health and Welfare (the Department). Appellant Grace at Twin Falls, LLC (Grace), a residential assisted living and memory care facility, partnered with a preferred pharmacy to offset costs associated with a software system that coordinated the tracking and delivery of residents’ prescription medications. Because residents who failed to choose the preferred pharmacy did not receive the offset, Grace sought to charge¹ those residents an additional $10.00 each month to cover the difference. Grace brought a petition for declaratory ruling to the Department, asking the Director to declare that Idaho Code section 39-3316(12)(b) and IDAPA 16.03.22.550.12.b do not prohibit Grace from charging the $10.00 fee to those residents who did not choose the preferred pharmacy. The Director denied the petition, declaring that Grace would not "be permitted to assess a non-preferred-pharmacy fee as such fee violates residents’ right to choose their pharmacy or pharmacist ...." Grace sought judicial review before the district court, which affirmed the Director's declaratory ruling. Grace now appeals to this Court. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Residential assisted living facilities (RALFs) in Idaho are subject to the Idaho Residential Care or Assisted Living Act (RALF Act), set forth in Idaho Code sections 39-3301 to -3358. The RALF Act includes what could be called the residents’ "Bill of Rights," which requires RALFs to "protect and promote [nineteen numbered rights – not including subparts] of each resident. ..." I.C. § 39-3316. One of those enumerated rights is that each resident control her or his "receipt of health-related services, including ... [t]he right to select the pharmacy or pharmacist of their choice. ..." Id . (12)(b). This is known as the "Pharmacy Choice Rule."

Grace is a RALF in Twin Falls, Idaho. According to Grace, its industry is "highly price sensitive and competitive, and thus there is constant pressure to provide better services for residents at a lower cost to ensure the safety and happiness of the residents" at its facilities. To increase efficiency and provide additional safety for residents, Grace uses an integrated management software system called BlueStep, which manages all aspects of its facility's operations, including the tracking and delivery of residents’ prescription medications. The license fee for use of the system is $11.00 per resident, per month.

Pharmacies compete in terms of price and service to be Grace's preferred pharmacy. After requesting proposals from various pharmacies, Grace found Red Rock Pharmacy (Red Rock) most competitive because it was willing to bubble pack medicine and deliver it directly to Grace for free. It was also willing to pay one-half of the $11.00 monthly fee charged by BlueStep if the majority of Grace's residents elected to use Red Rock.

Based on Red Rock's offer, Grace met with and surveyed its residents and their families in January 2018 to discuss what it called the two most practical options for dealing with the BlueStep licensing fee:

Option 1: Raise the residential rate for all residents to cover the net cost of the BlueStep System.

Option 2: Charge only those residents who opted out of Red Rock's services an additional $10.00 per month to cover their unsubsidized portion of the BlueStep System and the extra effort expended by Grace to coordinate resident medications without Red Rock's services.

Grace stated in its petition to the Director that its residents "overwhelmingly chose Option 2," even though a majority of Grace's residents were not using Red Rock as their pharmacy. As a result, Red Rock only agreed to absorb half of Grace's BlueStep license fee for the residents who chose to use Red Rock as their pharmacy. Grace then, ostensibly based on the vote of its residents, increased the monthly rent by $10.00 for those who elected to use a pharmacy other than Red Rock.

There is a question in the record about what happened next. Grace maintains in its briefing that in July 2019, the Department assessed a core violation² against Grace, having determined that the $10.00 increase in rent violated the Pharmacy Choice Rule. Grace further asserts that this violation was based, in part, on the Department's answers to Frequently Asked Questions (FAQ) for Residential Assisted Living Facilities, located at https://healthandwelfare.idaho.gov/providers/residential-assisted-living/resources.

The information provided in the record states³ :

Can a RALF charge a resident for choosing a pharmacy other than the facility's preferred pharmacy? No. Residents have a right to choose their pharmacy. Facilities can charge for bubble-packing, but they cannot charge for using a different pharmacy. See IDAPA 16.03.22.216.13, 320.07 and 55.12b

The Department counters that there is no evidence it assessed a core violation in the record, and that Grace's petition to the Director sought a declaratory ruling only, seeking a finding: "that the Department's Residential Assisted Living Facility (RALF) Rule, IDAPA 16.03.22.550.12.b – regarding residents’ right to select the pharmacy of their choice – is inapplicable to Grace's $10.00 fee for residents who do not choose Grace's preferred pharmacy, Red Rock Pharmacy." Grace never sought affirmative relief through vacating a core violation or any associated penalties. The Director issued what it called a "Declaratory Ruling," affirming the Department's position that Grace's "Fee violates residents’ right to choose their pharmacy or pharmacist, as expressed in publicly available Department interpretations." Given Grace's admission that "the majority of [its] residents ... have selected other pharmacies than Red Rock[,]" the Director concluded "the heart of Grace's proposed fee is that it will influence residents to choose Red Rock —Grace's preferred pharmacy—so that Grace may enjoy the full benefit of Red Rock's competitive offer, which unduly impacts residents’ right of choice." (Emphasis in original.) The Director did not reference a core violation in his decision, nor does it appear that it played any part in the analysis contained in his Declaratory Ruling. As a result, we do not need to resolve whether the Department issued a core violation in this appeal.

The Director also held that Grace failed to show any impairment in its ability to use and afford BlueStep through alternative means, such as charging all residents a $10.00 fee (Option 1 above) while upholding residents’ rights. The Director characterized Grace's proposal as a business "want" rather than a "need," and stated it was one that did not appear to serve residents who did not choose Red Rock. The Director also held Grace failed to show the Department's interpretation impaired a legal right, interest, or privilege.

Grace appealed the Director's decision by filing a verified petition for judicial review with the district court. Grace again argued its proposed fee would not inhibit residents from selecting the pharmacy of their choice. But Grace also asserted for the first time that the Department had issued a core violation against it, requiring it to "raise its rates as to all of its residents to cover the excess costs incurred as a result of residents not participating with Red Rock." Grace argued the Department's interpretation materially impaired or threatened to impair Grace's legal rights and privileges, by: (1) subjecting Grace's licensure to restriction of revocation; (2) subjecting Grace to the threat of monetary fines; (3) impairing Grace's ability to compete; and (4) impairing Grace's right to contract with its residents. Finally, Grace argued that Idaho Code section 39-3357(3) prohibits the Department from restraining Grace from enacting the proposed fee because the fee is not expressly prohibited by statute or the Department's rules as currently written.

The district court affirmed the Director's decision. Deferring to the Department's interpretation of the Pharmacy Choice Rule, the district court found that interpretation, as set forth in the FAQ above, was reasonable and not contrary to statutory language. The court further interpreted the statutory language directly, finding

[t]he statute at issue grants RALF residents a nearly unqualified right to choose their pharmacy, I.C. § 39-3316(12)(b), and requires RALFs to "protect and promote" that right, I.C. § 39-3316. A choice-of-pharmacy surcharge borders on the antithesis of protecting and promoting the right of pharmacy choice. Hence, the statute doesn't unambiguously allow Grace to surcharge residents for not choosing its preferred pharmacy.

Grace appeals the district court's conclusion to this Court.

II. ISSUES ON APPEAL

1. Whether the RALF Act precludes Grace from surcharging residents $10.00 per month for not choosing its preferred pharmacy?

2. Whether either party is entitled to an award of attorney fees on appeal.

III. STANDARD OF REVIEW

In an appeal from a district court where the court was acting in its appellate capacity under the Idaho Administrative Procedure Act ("IDAPA"), we review the decision of the district court to determine whether it correctly decided the issues presented to it. ... However, we review the agency record independently of the district court's decision....