Little Sisters of the Poor v. Mo. Dep't of Soc. Servs.

• Decision Date: 18 August 2020
• Docket Number: WD 82935
• Citation: 611 S.W.3d 781
• Parties: LITTLE SISTERS OF THE POOR, et al., Respondents, v. MISSOURI DEPARTMENT OF SOCIAL SERVICES and MO HealthNet Division, Appellants.
• Court: Missouri Court of Appeals

611 S.W.3d 781

LITTLE SISTERS OF THE POOR, et al., Respondents,

v.MISSOURI DEPARTMENT OF SOCIAL SERVICES and MO HealthNet Division, Appellants.

WD 82935

Missouri Court of Appeals, Western District.

OPINION FILED: August 18, 2020

Motion for Rehearing and/or Transfer to Supreme Court Denied September 29, 2020

Application for Transfer Denied December 22, 2020

Harvey M. Tettlebaum and Emily M. Park, HUSCH BLACKWELL LLP, Jefferson City, MO; Richard D. Watters and Richard W. Hill, LASHLEY & BAER, P.C., St. Louis, MO; and Matthew D. Turner, ARMSTRONG TEASDALE LLP, Jefferson City, MO, Attorneys for Respondents.

Eric S. Schmitt, Attorney General, Jeremiah J. Morgan, Deputy Attorney General – Civil, and Marie Claire Dwyer, Assistant Attorney General, Jefferson City, MO, Attorneys for Appellants.

Before Division Four: Karen King Mitchell, Presiding Judge, and Thomas H. Newton and Edward R. Ardini, Jr., Judges

Karen King Mitchell, Presiding Judge

The Missouri Department of Social Services (DSS) and MO HealthNet Division (MHD) appeal from the circuit court's entry of judgment adopting a decision of the Administrative Hearing Commission, following a petition filed by several nursing homes, and finding that MHD exceeded its statutory authority by implementing a Medicaid reimbursement rate reduction for nursing facilities using a specific dollar amount, rather than a percentage, and by promulgating a regulation to implement that rate reduction. DSS and MHD argue that the circuit court improperly treated the matter as judicial review of a contested case under the Missouri Administrative Procedures Act (MAPA), § 536.010, et seq.,¹ and, as a result, they were not permitted to introduce evidence relevant to the court's determination. DSS and MHD also raise challenges on the merits of the circuit court's decision, but, because we believe the circuit court did not have authority to conduct judicial review of a contested case, we do not reach the merits of the underlying issues. Instead, we reverse and remand the matter to the circuit court to allow Nursing Homes to amend their petition to seek a declaratory judgment, rather than judicial review of a contested case.

Background

On May 4, 2017, the Missouri General Assembly passed an appropriation bill that was approved by the governor on June 30, 2017. The bill included a 3.5% reduction in Medicaid per diem reimbursement rates for nursing facilities. In response, on July 26, 2017, MHD sent letters to all nursing facilities participating in the MO HealthNet Program, advising each facility that its per diem rate would be reduced by $5.37 for dates of service between August 1, 2017, and June 30, 2018, and reduced by $4.83 for dates of service beginning July 1, 2018.² This rate was reflected in an amendment to 13 C.S.R. § 70-10.016(3)(A)2 1, pertaining to Adjustments to the Reimbursement Rates:

(3) Adjustments to the Reimbursement Rates. Subject to the limitations prescribed in 13 CSR 70-10.015, a nursing facility's reimbursement rate may be adjusted as described in this section....

(A) Global Per Diem Rate Adjustments. A facility with either an interim rate or a prospective rate may qualify for the global per diem rate adjustments. Global per diem rate adjustments shall be added to the specified cost component ceiling.

...

21. FY-2018 per diem adjustment—

A. Facilities with either an interim rate or a prospective rate in effect on August 1, 2017, shall be subject to a decrease in their per diem rate effective for dates of service August 1, 2017 through June 30, 2018, of five dollars and thirty-seven cents ($5.37);

B. The per diem adjustment of five dollars and thirty-seven cents ($5.37) shall be deducted from the facility's current rate as of July 31, 2017, and is effective for dates of service beginning August 1, 2017;

C. Effective for dates of service beginning July 1, 2018, the per diem decrease shall be reduced to four dollars and eighty-three cents ($4.83). A per diem adjustment of fifty-four cents ($0.54) shall be added to the facilities’ current rate as of June 30, 2018, which includes the five dollars and thirty-seven cents ($5.37) decrease, and is effective for dates of service beginning July 1, 2018; and

D. This decrease is contingent upon approval by the Centers for Medicare and Medicaid Services [CMS].

13 C.S.R. § 70-10.016(3)(A)2 1.

Between August 18 and August 25, 2017, 330 separate nursing facilities (Nursing Homes) filed complaints with the Administrative Hearing Commission (AHC), challenging the amendment to the regulation implementing the rate reduction for one or more of the following reasons:

a. It was implemented without approval from CMS, in violation of MHD's own regulation and federal law;

b. It violated the intent of the Missouri General Assembly set forth in [the appropriation bill that] set forth a 3.5% rate reduction;

c. The method by which MHD implemented the rate reduction was arbitrary, capricious, or unreasonable as MHD failed to consider the negative impact to lower-rate providers by use of a flat dollar reduction rather than a percentage reduction;

d. The method by which MHD implemented the rate reduction violated the Equal Protection Clauses of the United States and Missouri Constitutions for the same reason the method was arbitrary, capricious, or unreasonable;

e. MHD violated various provisions of the federal Medicaid Act^{[ ]} and regulations, which have been incorporated into Missouri law, because the reduction was based solely on budgetary constraints without any discussion, information, studies, or analysis related to the sufficiency of the rates to meet beneficiary needs, the impact the reduction would have on access to nursing facility services, the effect the reduction would have on quality or level of care, or whether the rates are reasonable and adequate to meet provider costs; and

f. The state failed to have an access monitoring review plan as required by federal Medicaid regulations incorporated into Missouri law.

The AHC consolidated all 330 complaints, naming Little Sisters of the Poor as the lead petitioner. MHD asserted two affirmative defenses:

[1] its action in reducing the reimbursement rates was "legally justified" under the Missouri Constitution, Article III §§ 36 and 39, and Article IV § 28, §§ 208.151.6 and 208.154, "and the implementing regulations, the Social Security Act and federal regulations issued by CMS" and

[2] it was barred from paying [Nursing Homes] a per diem reimbursement rate effective July 31, 2017, without the $5.37 reduction pursuant to the Missouri Constitution, Article III §§ 36 and 39, and Article IV § 28.

The AHC held a hearing on Nursing Homes’ complaints on April 10 and 11, 2018. On June 13, 2018, the AHC issued findings of fact and conclusions of law, indicating:

We lack authority to reach a decision in their totality on [Nursing Homes’] claims and [DSS/MHD's] affirmative defenses regarding a change in [Nursing Homes’] Medicaid per diem reimbursement rates. We have the authority to make findings of fact in the context of the legal issues raised by the parties, and do so herein so that the parties may exhaust their administrative remedies and preserve their claims and defenses for appeal.

Nursing Homes filed a petition for judicial review in the Cole County Circuit Court and invoked § 536.110, allowing for a petition to seek judicial review of contested cases under the MAPA. In the petition, Nursing Homes sought the following:

1. a ruling that MHD's decision to reduce the nursing facility reimbursement rates, and the regulation implementing the rate reduction, were invalid, for the reasons set forth in the Commission's findings of fact and conclusions of law;

2. a ruling that MHD violated its own regulation, and such violation was not justified by MHD's constitutional defenses; and

3. findings and conclusions from the Court regarding Petitioners’ constitutional claims, including Petitioners’ claim that the method used by MHD to implement the rate reduction violated the Equal Protection Clauses of the United States and Missouri Constitutions.

The AHC certified the record before it and filed it with the circuit court under § 536.130. The circuit court then determined that, "[b]ecause the proceeding before the [AHC] was a ‘contested case,’ this Court reviews the [AHC]’s Decision pursuant to §§ 536.100-.140, RSMo." (citing § 536.010(4), defining "contested case"). The circuit court then adopted the findings of fact made by the AHC and issued its own conclusions of law, determining that (1) "MHD acted in violation of its own regulation"; (2) "[t]he rate reduction exceed[ed] MHD's statutory authority, [wa]s unauthorized by law, [wa]s arbitrary, capricious, or unreasonable, or [wa]s an abuse of discretion"; (3) "MHD's methodology to implement the rate reduction was arbitrary, capricious, or unreasonable and violated the Equal Protection Clauses of the United States and Missouri Constitutions"; (4) "MHD exceeded its statutory authority by implementing the rate reduction using a dollar amount and by promulgating a regulation to implement the rate reduction for SFY 2019 because MHD's methodology [wa]s contrary to the legislative intent"; and (5) DSS and MHD's constitutional defenses were meritless. DSS and MHD appeal.³

Analysis

Because the circuit court treated the matter as judicial review of a contested case, even though DSS and MHD have appealed, Nursing Homes filed the appellant's brief in this matter purportedly under Rule 84.05(e).⁴ Rule 84.05(e) provides:

If the circuit court reverses a decision of an administrative agency and the appellate court reviews the decision of the agency rather than of the circuit court, a party aggrieved by the circuit court decision shall file a notice of appeal and the record on appeal and shall file with the record on appeal a notice designating the party that is aggrieved by the agency decision. The party aggrieved by the agency decision shall file the appellant's brief and reply brief, if any, within the

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