L.S. Huckabay, M.D. Memorial Hosp. v. Kpmg
| Decision Date | 09 April 2003 |
| Docket Number | No. 36,775-CA.,36,775-CA. |
| Citation | 843 So.2d 1186 |
| Parties | L.S. HUCKABAY, M.D. MEMORIAL HOSPITAL, INC., Plaintiff-Appellee, v. KPMG PEAT MARWICK, LLP, Donald H. LeBlanc, Jr., and J. Mark Garrett, Defendants-Appellants. |
| Court | Court of Appeal of Louisiana — District of US |
John Gregory Odom, Joseph Payne Williams, Metairie, Stuart E. DesRoches, CHarles Ferrier Zimmer II, for Appellants.
James Guenard Bethard, Coushatta, for Appellee.
Before BROWN, DREW and KOSTELKA (Pro Tempore), JJ.
KPMG Peat Marwick, LLP, J. Mark Garrett, and Donald H. LeBlanc, Jr. (collectively referred to as "KPMG") were sued after failing to recover the maximum Medicaid Disproportionate Share ("DSH") payment for which L.S. Huckabay M.D. Memorial Hospital ("Hospital") was eligible. The trial court found in favor of the Hospital and awarded $439,712.15, the amount paid by the Hospital to consultants to recover the maximum DSH reimbursement, and $141,903.55 in damages suffered by the Hospital due to its temporary loss of the use of the DSH funds. Due to lack of evidentiary support, we amend the judgment to delete the award for loss of use of the funds. In all other respects, the judgment, as amended, is affirmed.
Dr. Jackie Huckabay and Dr. Fred Willis are the owners of the Hospital, which is located in Red River Parish. In the early 1990s, Dr. Huckabay and Dr. Willis considered selling the Hospital, and they thought they would need audited financial statements in order to do this. Judy Durham, the Hospital's Administrator at the time under a management agreement with Schumpert Hospital, encouraged them to hire the accounting firm KPMG to perform the audit.
By letter dated October 22, 1992, KPMG confirmed its engagement to perform an audit of the Hospital's financial statements for the fiscal year ending September 30, 1992. This letter detailed the scope of the audit services, as well as an estimate of the audit fees. Listed among the estimated audit fees was $4,000 for a cost report to be filed with the Louisiana Department of Health and Hospitals. Cost reports are utilized by health care providers to receive reimbursement for providing health care services to the poor. One aspect of the cost reports at issue is Disproportionate Share, which is an additional reimbursement payment to a qualifying hospital for treating a disproportionate share of low-income patients. KPMG ultimately sought $256,157 in DSH reimbursement for the Hospital for 1992.
On March 16, 1993, KPMG faxed to Durham a bill listing an additional charge of $8,000 regarding the preparation of the 1992 cost report. Included with this fax was a letter from J. Mark Garrett to Durham in which he stated, "[W]e are ready to assist you in filing an amended 1991 cost report to get as much as possible in reimbursements for this period." Amending the 1991 cost report resulted in an additional reimbursement of $121,867 to the Hospital.
The estimated cost for preparing the cost report for fiscal year 1993 was $6,000. Once again, this charge was listed under "Audit Fees" in a July 1993 engagement letter that was similar to the 1992 letter. KPMG sought a 1993 DSH payment of $38,542 for the Hospital.
James Bohl, an administrator of another local hospital, expressed an interest in purchasing the Hospital. Bohl asked Michael McKay to assist him in examining the Hospital's operations to determine if it was feasible to purchase the Hospital. Bohl and McKay then approached the Hospital with an offer to review the cost reports filed by KPMG to see if they could recover any additional reimbursement.
An independent contractor agreement between McKay and the Hospital was executed in May of 1994. The agreement provided that McKay would receive 20% of any past reimbursement adjustments received by the Hospital due to McKay's efforts on cost reports that had been filed prior to 1994. If McKay's efforts resulted in the Hospital having to return money to the government, McKay would generally be responsible for 20% of the amount owed by the Hospital.
Entered into evidence was an undated employment contract between Bohl and the Hospital. Bohl was to work as a consultant, and one of his duties was to assist McKay regarding reimbursement of funds from the state or the federal government. Bohl was to be paid $1,200 per week, plus 5% of any past reimbursement adjustments received by the Hospital due to McKay's efforts. Bohl would be responsible for 5% of any amount owed by the Hospital as a result of a reimbursement adjustment suggested by Bohl or McKay.
McKay's review of the 1992 and 1993 cost reports filed by KPMG ultimately yielded additional DSH payment reimbursements of more than $1,300,000 in 1992 and approximately $400,000 in 1993.
Suit was filed against KPMG, LeBlanc and Garrett on June 21, 1995. Trial was held in this matter in November 2001. Judgment was rendered in May of 2002, awarding 8439,712.15 to the Hospital for the amount paid to Bohl and McKay pursuant to the contingency fee contracts, and $141,903.55 to the Hospital for loss of use of the funds. KPMG appeals, and the Hospital answers the appeal, seeking an award of attorney fees.
At issue is a rule promulgated in 1988 by the Louisiana Department of Health and Hospitals ("DHH"), Division of Medical Assistance, as an emergency rule in the Title XIX Hospital Program. The rule provided, with our emphasis added:
The reimbursement methodology for inpatient hospital services shall incorporate a provision for an additional payment adjustment for hospitals serving a disproportionate share of low income patients (DSH). This provision shall be implemented in the following manner:
1. Qualifying criteria for a Disproportionate Share Hospital:
a. the hospital has at least two obstetricians who have staff privileges ...; or
b. the hospital treats inpatients who are predominantly individuals under 18 years of age; or
c. the hospital did not offer nonemergency obstetric services to the general population as of December 22, 1987; and
d. the hospital has a utilization rate in excess of either of the below-specified minimum utilization rates:
(1) Medicaid Utilization Rate ...; or
(2) Low-income Utilization Rate ....
2. Payment Adjustments for Disproportionate Share Hospitals
The higher of the below-specified payment adjustment factors shall be applied to the cost limits and then to the total allowable Medicaid inpatient costs for those hospitals qualifying as disproportionate share providers (DSH) as specified above for inpatient hospital services provided on or after July 1, 1988:
a. Medicaid Utilization Rate—for each percentage, or portion thereof, in excess of the Medicaid mean plus one standard deviation, a payment adjustment factor of one percent shall be applied; or
b. Low-income Utilization Rate—for each percentage, or portion thereof, of the low income utilization rate defined above, in excess of 25 percent, a payment adjustment factor of two percent shall be applied; or
c. Medicare DSH rate ....
In October of 1990, DHH, Office of the Secretary, Bureau of Health Services Financing, adopted an emergency rule adding an additional requirement of a minimum percentage of free care in order for a hospital to qualify under the low-income utilization methodology. The emergency rule also amended the payment adjustment section to provide:
When a[DSH] hospital qualifies for a payment adjustment based on low-income utilization, the adjustment factor is as follows: For each percentage, or portion thereof, of the low-income utilization rate as defined in II, in excess of 25 percent, a payment adjustment factor of three percent shall be applied.
In January of 1992, DHH, Office of the Secretary, Bureau of Health Services Financing, adopted an emergency rule deleting the 1990 additional free-care requirement for low-income utilization qualification. In addition, this emergency rule provided:
When a [DSH] hospital qualifies for a payment adjustment based on low-income utilization, the payment adjustment factor is as follows: Effective for services November, 1990 and after, a minimum of $1 plus a proportional adjustment equal to the percentage or portion thereof, of the low-income utilization rate as defined in II, in excess of 25 percent times a factor of three.
KPMG first argues that the trial court erred in denying KPMG's exception of prescription and its later motion for involuntary dismissal based on prescription. The relevant prescription/peremption period is set forth in La. R.S. 9:5604, which provides, in part:
A. No action for damages against any accountant duly licensed under the laws of this state, or any firm as defined in R.S. 37:71, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide professional accounting service shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.
B. The provisions of this Section are remedial and apply to all causes of action without regard to the date when the alleged act, omission, or neglect occurred. However, with respect to any alleged act, omission, or neglect occurring prior to September 7, 1990, actions must, in all events, be filed in a court of competent jurisdiction and proper venue on or before September 7, 1993, without regard to the date of discovery of the alleged act, omission, or neglect. The one-year and three-year periods of limitation provided in Subsection A of this Section are peremptive periods within the meaning of...
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