Indiana State Bd. of Public Welfare v. Tioga Pines Living Center, Inc., Nos. 30S01-9208-CV-00621

• Docket Nº: Nos. 30S01-9208-CV-00621
• Citation: 622 N.E.2d 935
• Case Date: October 29, 1993
• Court: Supreme Court of Indiana

Page 935

622 N.E.2d 935 42 Soc.Sec.Rep.Ser. 612, Medicare & Medicaid Guide
P 41,930 INDIANA STATE BOARD OF PUBLIC WELFARE, Indiana Department of
Public Welfare, Suzanne Magnant, in her capacity
as Administrator of Indiana Department
of Public Welfare, Appellants,
v.
TIOGA PINES LIVING CENTER, INC., Communicare of Indiana,
Inc., d/b/a American Village Retirement Community,
Bloomington Convalescent Center, Inc., Meadow Heights
Nursing Center, Inc., d/b/a Lincoln Hills of New Albany, Appellees.
INDIANA STATE BOARD OF PUBLIC WELFARE, Indiana Department of
Public Welfare, Suzanne Magnant, in her capacity
as Administrator of Indiana Department
of Public Welfare, Appellants,
v.
COMMUNITY CARE CENTERS, INC., and the Indiana Health Care
Association, Appellees. Nos. 30S01-9208-CV-00621, 30S01-9208-CV-00621. Supreme Court of Indiana. Oct. 29, 1993.

Page 936

Pamela L. Carter, Indiana Atty. Gen., Gordon E. White, Jr., Deputy Atty. Gen., Indianapolis, Charles A. Miller, S. William Livingston, Jr., Mark H. Lynch, Lanny A. Breuer, Anna P. Engh, Covington & Burling, Washington, DC, for appellants.

Gregory A. Huffman, Steven D. Murphy, Scott E. Shockley, Defur, Voran, Hanley, Radcliff & Reed, Muncie, William P.

Tedards, Tedards & Herman, Washington, DC, for appellees Community Care Centers, Inc.

David F. McNamar, Randall R. Fearnow, Janet A. McSharar, Alastair J. Warr, McNamar, Fearnow & McSharar, Michael

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R. Franceschini, Brett R. Fleitz, Steers Sullivan P.C., Indianapolis, Michael J. Tosick, Greenfield, for appellees Tioga Pines Class.

Paul R. Black, McHale, Cook & Welch, P.C., Indianapolis, Malcolm J. Harkins, III, Mark J. Biros, David M. Levine, Proskauer Rose Goetz & Mendelsohn, Washington, DC, for appellees/cross-appellants.

ON PETITION TO TRANSFER

DeBRULER, Justice.

The plaintiff nursing homes in these two appeals (hereinafter, collectively, "Providers") successfully challenged the Medicaid reimbursement system in Indiana. Defendants, Indiana State Board of Public Welfare, Indiana Department of Public Welfare, ¹ and Suzanne Magnant, in her capacity as Administrator of the Indiana Department of Public Welfare (hereinafter, "the State"), appeal from adverse judgments rendered in the Hancock Circuit Court and the Blackford Circuit Court. The Court of Appeals consolidated the pending two appeals in accordance with Ind. Appellate Rule 5(B), since there are common questions of law and fact. Because these appeals involve a question of law of substantial public importance requiring an early determination, this Court took jurisdiction of the consolidated appeal from the Court of Appeals pursuant to App.R. 4(A)(10) (now App.R. 4(A)(9)). This Court held oral argument on April 28, 1993.

The class action captioned Tioga Pines Living Center, Inc. v. Indiana State Board of Public Welfare was brought on behalf of approximately 785 Medicaid-certified, skilled nursing facilities and intermediate care facilities in Indiana. The complaint was filed pursuant to 42 U.S.C. Sec. 1983 and Ind.Code Sec. 34-4-10-1, et seq., known as the Uniform Declaratory Judgments Act. The Hancock Circuit Court, Ronald L. Gottschalk, J., entered a "Partial Final Judgment Entry" on March 25, 1992, from which the State appeals. The major elements of the partial final judgment are as follows:

1) the State's Medicaid reimbursement rules violated the federal Boren Amendment, 42 U.S.C. Sec. 1396a(a)(13)(A), and its state counterpart, I.C. Sec. 12-1-7-17.6(b), because the reimbursement rules employed the Gross National Product implicit price deflator (GNP/ipd) as a cap upon any annual reimbursement rate increase;

2) the use of the tests of reasonableness in setting reimbursement rates was invalid, because the tests were never duly promulgated;

3) because of the illegalities of the reimbursement regulations, class members were under-reimbursed their reasonable costs in providing care in conformance with federal and state regulations;

4) the State should repay class members for all under-reimbursement from January 24, 1988 to March 31, 1991;

5) the State is liable for the class' and intervenors' attorney fees and expenses in the amount of $565,000.00 and $667,907.00, respectively, pursuant to 42 U.S.C. Sec. 1988; and

6) the class' counsel is entitled to attorney fees in the amount of 25% of the fund created pursuant to Ind. Trial Rule 23(D), or $10,075,079.00, plus expenses.

A procedure was set up whereby each class member could present a claim against the fund to a court appointed Master and for the State to challenge the individual claims.

In the case captioned Community Care Centers, Inc. v. Indiana State Board of Public Welfare, plaintiff nursing homes sought declaratory and injunctive relief pursuant to Indiana statutory provisions. The Blackford Circuit Court, Bruce C. Bade, J., entered three orders granting partial summary judgment, dated May 17, 1990, January 15, 1991 and December 16, 1991. The State appeals all three orders.

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The May 17, 1990 partial summary judgment enjoined the State from utilizing the rules promulgated in 1988, the "tests of reasonableness," ² because there was an absence of a quorum present at the Board of Public Welfare meeting at which the tests were promulgated.

The January 15, 1991 partial summary judgment enjoined the State from using the GNP/ipd maximum annual rate increase limiter as the sole determinant in setting nursing home rates. In its January 15, 1991 partial summary judgment order, the trial court incorporated its findings and conclusions from a previous order granting Community Care a temporary restraining order on this same issue. In that TRO, dated June 5, 1990, the trial court found that although the State applies five rate limiters to a provider's calculated rate, the GNP/ipd limiter may be the sole determinant of a provider's reimbursement rate.

The December 16, 1991 summary judgment enjoined the State from using certain aspects of the tests of reasonableness. Specifically, the State was enjoined from making line item comparisons and comparisons without regard to size in setting Community Care's reimbursement rates.

The effect of the summary judgments is that in setting rates for the Community Care facilities, the State is prohibited from using the tests of reasonableness or GNP/ipd limiters and is required to make comparisons taking into account size of facilities.

The following issues are raised on appeal:

(1) whether the trial courts were in error in concluding that the State employed an illegal methodology due to the use of the GNP/ipd annual rate increase limiter and the tests of reasonableness in determining Medicaid reimbursement rates;

(2) whether the trial court in Tioga Pines was in error in awarding damages; and

(3) whether the Tioga Pines trial court's attorney fees award was proper.

Congress established the Medicaid program in 1965. It is a government program, jointly administered by the states and the federal government, designed for assuring payment for health care given those who cannot pay. Hospital care, nursing home care, physician services, and medicines are included. Annual Medicaid payments in Indiana total several billion dollars. The burden of these payments on a participating state, such as Indiana, has been assumed by both the state and the nation as a whole, the federal government paying the greater share. The state bears the primary responsibility for initially establishing a state plan conforming to federal requirements; however, this function is subject to oversight and approval by the federal government through the Health Care Financing Administration ("HCFA"). See generally Eleanor D. Kinney, Rule and Policy Making for the Medicaid Program: A Challenge to Federalism, 51 Ohio State L.J. 855 (1990) [hereinafter Medicaid Program ].

The State's reimbursement plan comprises its detailed rules and regulations promulgated pursuant to authority granted by statute. The State's authority to make such rules and regulations during the years 1978, 1983, and 1988, when amendments and publications of the rules having particular relevance to these cases were promulgated, was delegated to the State in a 1936 statutory provision:

[The state department] may make such rules and regulations and take such action as may be deemed necessary or desirable to carry out the provisions of this act and which are not inconsistent therewith.

Burns Ann.Ind.Stat. Sec. 52-1104(f) (1964 Repl.) ³ Providers did not challenge this

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delegation of authority, but based their claims upon the proposition that the DPW's rules and regulations were not valid.

It is elementary that the authority of the State to engage in administrative action is limited to that which is granted it by statute and that administrative action within such limitation has the force of law. Blue v. Beach (1900), 155 Ind. 121, 56 N.E. 89. Administrative action is often categorized as either rulemaking or adjudicatory. Blinzinger v. Americana Healthcare Corp. (1984), Ind.App., 466 N.E.2d 1371. Rulemaking includes the process of formulating or adopting a rule. I.C. Sec. 4-22-2-3 (Burns 1993). The challenged action here involves rulemaking as opposed to adjudication. Rulemaking is not subject to judicial review under the provisions of the Administrative Adjudication Act, I.C. Sec. 4-22-1-1, et seq. Indiana Environmental v. Indiana-Kentucky Elec. (1979), 181 Ind.App. 570, 393 N.E.2d 213. However, rulemaking is not exempt from judicial review. Gross Income Tax Div. v. Colpaert Realty Corp. (1952), 231 Ind. 463, 109 N.E.2d 415, 422. Courts exercise a greater degree of self-restraint when reviewing agency rulemaking as the process may involve a generally applicable interpretation of the basic public purpose of the governing statute, and it is not desirable to unduly restrict the freedom of the agency to do that. A similar self-restraint is appropriate in adjudicatory reviews. Indiana Department of Public...