Madrid Home for the Aging v. Iowa Dept. of Human Services, Division of Medical Services, 95-2064

• Decision Date: 18 December 1996
• Docket Number: No. 95-2064,95-2064
• Citation: 557 N.W.2d 507
• Parties: , Medicare & Medicaid Guide P 45,002 MADRID HOME FOR THE AGING, Appellant, v. IOWA DEPARTMENT OF HUMAN SERVICES, DIVISION OF MEDICAL SERVICES, Appellee.
• Court: Iowa Supreme Court

Page 507

557 N.W.2d 507

52 Soc.Sec.Rep.Ser. 552, Medicare & Medicaid Guide P 45,002

MADRID HOME FOR THE AGING, Appellant, v. IOWA DEPARTMENT OF HUMAN SERVICES, DIVISION OF MEDICAL SERVICES, Appellee.

No. 95-2064.

Supreme Court of Iowa.

Dec. 18, 1996.

Steven M. Nadel and Mark W. Beerman of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellant.

Thomas J. Miller, Attorney General, and Daniel W. Hart, Assistant Attorney General, for appellee.

Considered en banc.

ANDREASEN, Justice.

This is an appeal from a judgment entered by the district court, affirming the final decision of the Iowa Department of Human Services (DHS). The court concluded that the reimbursement rates, paid to a skilled nursing care facility under the Iowa Medicaid program, satisfied the provisions of federal and state law. We affirm.

I. Background Facts and Proceedings.

Madrid Home for the Aging (Madrid Home) is a skilled nursing care facility in Madrid, Iowa. It provides skilled nursing care and services to needy persons under the Iowa Medicaid program, which is administered by the DHS. See Iowa Code ch. 249A (1993). A portion of Madrid Home's expenses are reimbursed under the program.

In April 1993, William Thayer, the President and CEO of Madrid Home, sent a written complaint to the Health Care Financing Administration (HCFA), the agency administering the Medicaid program at the federal level. Thayer's complaint was against DHS and concerned its reimbursement rates. The reimbursement rate represents the amount that a skilled nursing facility receives "per patient, per day." In the letter, he argued that Iowa was not operating its Medicaid program for long-term care skilled facilities within the intent of the law. At the time, DHS was still using 1984 as the base year in its rate determination. Specifically, Thayer wanted HCFA to direct DHS to increase its reimbursement rates to reflect present costs.

In response to this complaint, Gene Hyde, the HCFA Regional Administrator, assured Thayer that all reimbursement payments under the state plan would comply with federal requirements. Hyde stated that HCFA would determine whether the reimbursement methodology results in rates which are reasonable and adequate to meet the costs that must be incurred by an efficiently and economically operated provider.

Following a review of their policy, DHS agreed to establish new rates, effective February 1, 1994. It planned to "rebase" its rates by establishing a new base year, using more current costs. DHS chose 1991 as its new base year because, at the time of rebasing, that was the year with the most recent finalized reports of actual costs. As a result, DHS still had to bring 1991 costs up to date to 1994. To do this, DHS used the rate increases that had been granted to skilled nursing facilities, by the state legislature, between 1991 and 1994. During that period, the legislature provided no rate increase for fiscal year 1992-93 (the fiscal year runs from July 1 to June 30). For fiscal year 1993-94, the legislature appropriated a 4.3% increase.

Therefore, DHS increased 1991 costs by 4.3% to arrive at the reimbursement rate, which became effective on February 1, 1994. DHS did not use an inflation factor for fiscal year 1992-93. Following the rebasing process, DHS amended its administrative rule to reflect the rebasing. See Iowa Admin.Code r. 441-79.1(9) (1993). In addition, the amendments also provided for rebasing of skilled nursing care facility rates every three years. Iowa Admin.Code r. 441-79.1(9)(I).

DHS initially notified Madrid Home that its new reimbursement rate would be $91.74, effective February 1, 1994. In July, DHS sent a letter to Madrid Home, stating that the reimbursement rate effective February 1 was actually $89.00, not $91.74. In that same letter, Madrid Home was also informed that effective July 1, its rate was being raised again, from $89.00 to $93.36, based on a 4.9% increase in the legislative appropriation. In a letter dated July 14, Thayer complained to DHS about the February rate change. In its response, DHS told Thayer that the $91.74 rate was a preliminary calculation based on different inflation factors. DHS also stated that even though Madrid Home did not get its official notice until July, DHS had been reimbursing Madrid Home at the new rate of $89.00 since February 1.

DHS treated Thayer's letter as an appeal, which was docketed as a contested case proceeding. See Iowa Code § 17A.12. Following a hearing, the administrative law judge (ALJ) issued a proposed decision, which stated that the action of DHS in establishing a new reimbursement rate for skilled nursing care services was correct. The Director of DHS adopted the proposed decision of the ALJ with some additional conclusions of law. The Director concluded that DHS's rate and its methodology complied with both state and federal law governing Medicaid reimbursement. Madrid Home filed a petition for judicial review challenging DHS's decision. Following a hearing, the district court entered a decision on November 6, 1995, affirming DHS's decision. The court stated:

[T]he Medicaid reimbursement rate, the DHS methodology and the Director's Final Decision do not violate [federal law]. The rebasing methodology including a zero percent inflation factor for fiscal year 1993 violates neither [federal law] nor the Iowa Administrative Code. The decision of the Director is not affected by error of law. It is supported by substantial evidence. It is not arbitrary or capricious.

Madrid Home filed a notice of appeal.

II. Scope of Review.

Judicial review of a contested proceeding, both in the district court and the appellate courts, is to correct errors at law. Iowa Code § 17A.19; Sahu v. Iowa Bd. of Med. Exam'rs, 537 N.W.2d 674, 676 (Iowa 1995). In other words, our review pursuant to Iowa Code section 17A.20 is not de novo. UNI-United Faculty v. Iowa Pub. Employment Relations Bd., 545 N.W.2d 274, 278 (Iowa 1996). We will uphold the agency's action if it is supported by "substantial evidence in the record made before the agency when that record is viewed as a whole." Iowa Code § 17A.19(8)(f); Pointer v. Iowa Dep't of Transp., 546 N.W.2d 623, 625 (Iowa 1996). Evidence is substantial when a reasonable person could accept it as adequate to reach the same findings. Pointer, 546 N.W.2d at 625. The ultimate question is not whether the evidence supports a different finding, but whether the evidence supports the findings actually made. Id. Therefore, an agency's findings of fact are binding on appeal unless a contrary result is deemed as a matter of law. UNI-United Faculty, 545 N.W.2d at 278.

We are not bound by the agency's legal conclusions. Stroup v. Reno, 530 N.W.2d 441, 443 (Iowa 1995). We accord only limited deference to the agency's interpretation of law, including statutory and agency rule interpretations. Staceyville Community Nursing Home v. Department of Inspections & Appeals, 528 N.W.2d 557, 559 (Iowa 1995). However, the agency's determination of a question of law is given careful consideration in areas of the agency's expertise. Id. For example, in cases involving interpretation of statutes that affect an agency's work, we defer to the agency's expertise unless the suggested interpretation is clearly erroneous. Wiebenga v. Iowa Dep't of Transp., 530 N.W.2d 732, 734 (Iowa 1995).

III. Validity of Madrid Home's Reimbursement Rate.

The narrow issue before us is whether the DHS's use of a zero percent inflation factor for fiscal year 1992-93, as part of its calculation for the reimbursement rate effective February 1, 1994, violates federal law (specifically the Boren Amendment of the Social Security Act) or an Iowa Administrative Code rule. Before addressing the arguments raised by Madrid Home, we will discuss the background of Medicaid and the Boren Amendment.

A. Background of Medicaid and the Boren Amendment.

Medicaid is a cooperative federal-state program through which the federal government provides financial assistance to states so that they may furnish medical care to needy individuals. See 42 U.S.C. § 1396 (1994); Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455, 462 (1990). Although participation in the program is voluntary, participating states must comply with certain requirements imposed by the Act and regulations promulgated by the Secretary of the United States Department of Health and Human Services (Secretary). Wilder, 496 U.S. at 502, 110 S.Ct. at 2513, 110 L.Ed.2d at 462. To qualify for federal assistance, a state must formulate a plan and submit it to HCFA for approval. Id.; Kansas Health Care Ass'n v. Kansas Dep't of Soc. & Rehabilitation Servs., 31 F.3d 1536, 1538 (10th Cir.1994). Among other things, the state plan is required to establish a scheme for reimbursing health care providers for the medical services provided to needy individuals. Wilder, 496 U.S. at 502, 110 S.Ct. at 2513, 110 L.Ed.2d at 462.

After the plan is approved, the federal government then reimburses the state for a percentage of the program's expenses, including administrative costs and other program-related expenses. Connecticut Hosp. Ass'n v. Weicker, 46 F.3d 211, 213 (2d Cir.1995). Until 1980, states reimbursed providers for the "reasonable cost" of services actually provided to Medicaid patients. Wilder, 496 U.S. at 505, 110 S.Ct. at 2515, 110 L.Ed.2d at 464; Weicker, 46 F.3d at 213. In other words, providers were paid for their actual costs incurred, regardless of disparities in costs or efficiencies among providers. New Jersey Hosp. Ass'n v. Waldman, 73 F.3d 509, 511 (3d Cir.1995). This "retrospective" process of payment proved over time to be inherently inflational and contained no incentives for efficient performance. Weicker, 46 F.3d at 213.

In 1980, Congress enacted the Boren Amendment to the Social Security Act, which changed the standard for reimbursement of nursing and intermediate care...