Hillhaven Corp. v. DHFS, 99-0684.

• Decision Date: 23 December 1999
• Docket Number: No. 99-0684.,99-0684.
• Citation: 2000 WI App 20,232 Wis.2d 400,606 N.W.2d 572
• Parties: HILLHAVEN CORPORATION, Vencor, Inc., Petitioners-Respondents, v. DEPARTMENT OF HEALTH AND FAMILY SERVICES of the State of Wisconsin, and Bureau of Health Care Financing, Respondents-Appellants.
• Court: Wisconsin Court of Appeals

232 Wis.2d 400

2000 WI App 20

606 N.W.2d 572

HILLHAVEN CORPORATION, Vencor, Inc., Petitioners-Respondents, v. DEPARTMENT OF HEALTH AND FAMILY SERVICES of the State of Wisconsin, and Bureau of Health Care Financing, Respondents-Appellants.

No. 99-0684.

Court of Appeals of Wisconsin.

Submitted on briefs October 8, 1999.

Decided December 23, 1999.

On behalf of the respondents-appellants, the cause was submitted on the briefs of James E. Doyle, attorney general, and Thomas C. Bellavia, assistant attorney general.

On behalf of the petitioner-respondent, the cause was submitted on the brief of Richard J. Krill and Ralph J. Ehlinger of Ehlinger & Krill, S.C., of Milwaukee.

Before Dykman, P.J., Vergeront and Deininger, JJ.

¶ 1. DYKMAN, P.J.

The Department of Health and Family Services (DHFS) and the Bureau of Health Care Financing appeal from an order of the Dane County Circuit Court reversing a DHFS decision. DHFS determined that a trust set up by the Hillhaven Corporation, Vencor, Inc., to provide health benefits to its employees was "self-insurance" for purposes of DHFS's Medical Assistance Program reimbursement methodology. The circuit court concluded that there was no basis by which to categorize the Hillhaven trust was self-insurance. DHFS argues that the circuit court erred because DHFS's determination that the trust was self-insurance was consistent with the purpose of its reimbursement rules and consistent with the commonly understood definition of self-insurance under Wisconsin law. Because we conclude that DHFS's determination was both reasonable and consistent with the purpose of the reimbursement rules, we defer to DHFS's decision and reverse the decision of the circuit court.

I. Background

¶ 2. Hillhaven owns several nursing homes in Wisconsin that are certified providers under the Medical Assistance Program. Hillhaven provides health insurance as a fringe benefit for the employees at these nursing homes. Rather than contracting with a commercial insurer, Hillhaven created the Hillhaven Corporation Voluntary Participant Benefit Trust. Instead of paying more expensive premium payments to a third-party insurance company, Hillhaven and the participating employees make contributions to the trust fund. The fund is used to provide health-care benefits to participating Hillhaven employees, former employees, and their dependents, and to pay administrative expenses. Under the terms of the trust, Hillhaven has the right to determine the amounts and the times of its contributions, but Hillhaven contracted with an insurance company to administer the trust and set the amount of the contributions. The assets of the trust fund can be used only for providing health benefits to employees and for administrative expenses. Contributions to the trust fund may never revert to Hillhaven's control.¹ If the trust funds are ever inadequate to pay any claims under Hillhaven's health plan, Hillhaven must cover the deficiency.²

¶ 3. Under § 49.45(6m)(ag), STATS.,³ DHFS is charged with establishing the rate system for reimbursing nursing homes participating in the Medical Assistance Program. As stipulated in § 49.45(6m)(ag), DHFS updates its rate-setting methodology each year in the "Methods of Implementation For Title XIX Nursing Home Payment Rates" (Methods).⁴ DHFS's Bureau of Health Care Financing (Bureau) is primarily responsible for establishing the nursing home payment rates. The Methods states that its purpose is "to ensure that nursing homes . . . are paid appropriately for care provided to Medicaid residents in a cost-efficient fashion." The Methods includes a section devoted to reimbursement for nursing homes that use self-insurance plans. Section 1.248, "Self-Insurance Costs," provides:

The allowable expense for self-insurance plans is the actual claims paid during the cost reporting period. At the facility's option, accrual of pending claims may be made to the extent that such claims are paid within 75 days of the close of the cost reporting period. Such accrued claims may not be expensed in the following year's cost report. If a facility's self-insurance fund is managed by an independent (non-related) trustee, the fee paid to the trustee may be included in allowable self-insurance costs. If actuarial determinations are performed by an independent (non-related, non-employee) actuary, the fee paid to the actuary may be included in allowable self-insurance costs. Allowable self-insurance costs may also include the premium costs of reinsurance ("stop loss") policies purchased from an unrelated company and any costs to administer the self insurance plan. Any proceeds from these policies will be offset against the claims paid during the cost reporting period of receipt.

¶ 4. For the July 1, 1992 through June 30, 1993 reimbursement rate period, the Bureau determined that Hillhaven's trust constituted a self-insurance plan, as covered by § 1.248 of the Methods. Thus, Hillhaven's reimbursement rate was based on the administrative expenses of the trust and the benefit claims actually paid out, rather than on the amount of Hillhaven's contributions to the trust. Hillhaven petitioned DHFS to review the Bureau's decision.

¶ 5. After a hearing, the DHFS hearing examiner decided that the Bureau correctly determined that Hill- haven's trust was self-insurance. The examiner acknowledged that "self-insurance" was not defined in the Methods or in § 49.45, STATS. She stated that "the Trust fits neither the classic example of self-insurance . . . nor the requirements of an unrelated insurance company," but:

[u]nder the Methods, a nursing home is either self-insured or uses an unrelated outside insurance company. The Trust is not an unrelated outside insurance company because it was created to insure only persons related to Hillhaven by employment; it does not write insurance contracts with a larger public. There are many ties to Hillhaven.

The examiner also relied on the definitions of "self-insurance" and "insurance company" from BLACK'S LAW DICTIONARY.⁵ Finally, she stated, "If I were to accept Hillhaven's premise that the Trust is not a self-insurance plan because the Trust is not insuring the Trust (self), I doubt that any segregated fund or trust could ever be characterized as self-insurance."

¶ 6. Hillhaven petitioned the Dane County Circuit Court to review the hearing examiner's decision. The circuit court determined that Hillhaven's trust was not easily categorized as self-insurance or insurance for purposes of the Methods. It remanded the action so that DHFS could determine the history and intent behind the applicable sections of the Methods and issue another decision.

¶ 7. On remand, the hearing examiner again decided that the Bureau had correctly determined Hillhaven's trust to be a self-insurance plan. She acknowledged that:

The legislative history on this section can be charitably described as minimal. The Bureau has been able to come up with no documented commentary that explains the intended parameters of § 1.248.... There is no "smoking gun" in these documents that compellingly places the Trust into the category of self-insurance or a third-party insurance company.

The examiner explained that the only useful legislative history was that, from 1988 through 1990, § 1.248 of the Methods included an exception for contributions to Medicare self-insurance plans during any fiscal year ending on or before December 31, 1988. For those plans, DHFS could base reimbursement on the contributions to the plans, rather than on the actual claims paid out. This exception was removed in 1991. The examiner concluded that this indicated that the Methods drafter could have allowed reimbursement for contributions to certain self-insurance plans, instead of just for actual claims paid, but elected not to.

¶ 8. The examiner stated that, although the legislative history of the Methods was not persuasive, she had to "make a decision one way or the other." She concluded that the reasoning in her original decision was still sound. She also adopted the following argument from the Bureau's brief on remand:

In creating its Methods of Implementation section concerning self-insurance, the Bureau was obviously mindful that an insurance system controlled by a nursing home presents an inherent risk that the amounts of the nursing home's premiums will be inflated. Accordingly, to reduce the likelihood of abuse by an insurance program operated by the nursing home, the Bureau relied on costs less likely to be artificially increased: namely the claims paid out in benefits, rather than the amounts paid by the nursing home as premiums.

There may indeed be nursing homes who operate their own insurance systems and who are not in fact attempting to inflate their costs. However, as the federal courts have noted, it is perfectly appropriate to create a requirement for prophylactic purposes. In the Hillhaven situation, the fact that its Trust is under the control of Hillhaven officials and that Hillhaven itself determines the timing and amounts of contributions to the Trust points to the conclusion that Hillhaven presents the very situation about which the Methods of Implementation are concerned: the potential for cost inflation, even if costs are not inflated in actuality.

¶ 9. Hillhaven petitioned the Dane County Circuit Court to review DHFS's decision on remand. The circuit court reversed, concluding that there was no basis by which to categorize Hillhaven's trust as "self-insurance" for purposes of § 1.248 of the Methods. DHFS appeals.

II. Standard of Review

¶ 10. DHFS argues that its decision to apply § 1.248 of the Methods in this case is entitled to due deference because of its expertise in administering the Medical Assistance Program's reimbursement system. DHFS asserts that we should uphold the hearing examiner's decision if we conclude that it was reasonable. Hillhaven contends that the hearing examiner's decision is subject to de...