Midwest Division-Oprmc v. Dept. Soc. Serv.

• Decision Date: 18 December 2007
• Docket Number: No. WD 67544.,No. WD 67633.,WD 67544.,WD 67633.
• Parties: MIDWEST DIVISION-OPRMC, LLC d/b/a Overland Park Regional Medical Center and Midwest Division-MMC, LCC d/b/a Menorah Medical Center, Appellants-Respondents, v. DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Respondents-Appellants.
• Court: Missouri Court of Appeals

241 S.W.3d 371

MIDWEST DIVISION-OPRMC, LLC d/b/a Overland Park Regional Medical Center and Midwest Division-MMC, LCC d/b/a Menorah Medical Center, Appellants-Respondents, v. DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Respondents-Appellants.

No. WD 67544.

No. WD 67633.

Missouri Court of Appeals, Western District.

December 18, 2007.

Richard Donald Watters, St. Louis, Terry C. Allen, Jefferson City, for Appellant.

Jeremiah W. (Jay) Nixon, Atty. Gen., Gary Lee Gardner, Office of Atty. Gen., Jefferson City, for Respondent.

RONALD R. HOLLIGER, Judge.

Two Kansas hospitals ("Hospitals") and the Missouri Department of Social Services ("DSS"), appeal a trial court judgment finding that DSS illegally paid Hospitals less than Missouri hospitals for the same services provided Missouri Medicaid recipients. The trial court awarded Hospitals damages for the underpayments for five years but held that damages for the previous years were barred by the statute of limitations. Hospitals appeal the amount of the damages award and the denial of prejudgment interest. DSS cross-appeals the determination of its liability for any damages to Hospitals. We determine that Hospitals and DSS had a valid agreement for reimbursement and that DSS failed to properly calculate reimbursements to Hospitals for the services they provided. We also determine that the trial court improperly limited Hospitals' damages based on the five-year statute of limitations and improperly denied prejudgment interest. The judgment is, therefore, affirmed in part and reversed in part.

I. The Stipulated Facts

The case was submitted to the trial court without a jury on a Joint Stipulation of Facts. Following is a summary of the parties' stipulation.

Hospitals are both located, in Kansas, near the Missouri border, and provide services to Missouri Medicaid beneficiaries. Pursuant to Chapter 208, Hospitals each had an agreement with DSS¹ to provide inpatient services to Missouri Medicaid beneficiaries. Hospitals completed the "Missouri Medicaid Provider Questionnaire" and signed the "Title XIX Participation Agreement for Inpatient/Outpatient Hospital Services" ("Provider Agreements"). The Provider Agreements were submitted to DSS as a condition of participation in the Missouri Medicaid Program. The Provider Agreements signed by Hospitals state:

I agree the Missouri Title XIX Medicaid manual, bulletins, rules, regulations and amendments thereto shall govern and control my delivery of service, and further agree to the following terms: ... The rate of reimbursement for services will be based on charges established and determined by the Division of Medical Services Medicaid manual, bulletins, and amendments thereto in accordance with the Vendor Payment Program ...

The parties agreed that the listed sources, including the Medicaid manual, bulletins, and amendments, do not specify reimbursement rates. Regulations promulgated by DSS, however, set forth the rates and the methodology for determining reimbursement. These regulations are authorized by section 208.152,² which provides:

Benefit payments for medical assistance shall be made on behalf of those eligible needy persons who are unable to provide for it in whole or in part, with any payments to be made on the basis of the reasonable cost of the care or reasonable charge for the services as defined and determined by the division of medical services ...

Section 208.152.1 (emphasis added).

With the authority granted by Chapter 208, DSS issued rules and regulations defining allowable and reasonable costs for health care providers as well as the proper method of reimbursement. "Reasonable cost" of inpatient hospital services is defined as "an individual hospital's Medicaid per diem cost per day as determined in accordance with the general plan rate calculation from section (3) of this regulation using the base year cost report." 13 CSR 70-15.010(2)(O) (former version at 13 CSR 70-15.010(2)(M)). Between April 1, 1994, and October 30, 2004, only in-state hospitals were reimbursed their "reasonable cost" for services. During this time, the regulations provided a different method of reimbursement for out-of-state hospitals. Pursuant to 13 CSR 70-15.010(3), in-state hospitals were paid per diem rates based on their own cost of providing services, plus Medicaid add-ons. See 13 CSR 70-15.010(1)(C). Hospitals located outside of Missouri were paid the lower of: (1) the charges they billed for services, or (2) $345.13 per diem for adults aged twenty-one years or older and $660.89 per diem for children under twenty-one years of age (Out-of-State Cap Rate). 13 CSR 70-15.010(14)(A) (repealed by 13 CSR 70-15.190). These Out-of-State Cap Rates were based on outdated weighted averages for Missouri hospitals. The Out-of-State Cap Rate for adults equaled the 1986 Missouri rate, with some adjustment for inflation, while the Out-of-State Cap Rate for children reflected the October 1993 rate. In-state reimbursement rates were adjusted yearly for inflation, but out-of-state hospital rates never were. If Overland Park Regional had been paid using the same methodology applied to Missouri hospitals during fiscal years 1994 through 2004, it would have been reimbursed an additional $1,307,856.95. Menorah would have received an additional $782,705.15.

II. Procedural Background

The sequence of events surrounding the attack on this alleged discriminatory treatment of out-of-state hospitals and the ultimate withdrawal by DSS of the regulation on which it was based is arguably important to some of the issues so it is set forth in detail herein. In their petition filed June 9, 2004, Hospitals sought a declaratory judgment, injunction, and damages, alleging that the Out-of-State Cap Rate conflicted with section 208.152, and violated the Equal Protection Clause, the Commerce Clause, and other federal law. The same circuit court had found in a 2003 case involving other hospitals that the Out-of-State Cap Rate violated the provision in section 208.152.1 requiring that service providers be reimbursed the "reasonable cost of the care or reasonable charge for the services." See Univ. of Kan. Hosp. Auth. v. Dep't of Soc. Servs., No. 01-CV325584. DSS did not appeal that ruling. Sixteen days after this suit was filed, the Cole County Circuit Court again found the Out-of-State Cap Rate invalid. See Blessing Hosp. v. Dep't of Soc. Servs., No. 03-CV3242295. Again DSS did not appeal but rescinded the invalid regulation on October 30, 2004, and adopted a new regulation, 13 CSR 70-15.190(3). From July 1, 2004, until the new regulation was enacted, DSS reimbursed Hospitals at a rate similar to that of in-state hospitals.

After repeal of the offensive regulation, DSS filed a motion to dismiss Hospitals' claim for declaratory judgment arguing that it was barred by sovereign immunity and was moot because the regulation that it sought to have interpreted and declared invalid was no longer in force. In an order dated December 6, 2004, the trial court found that Hospitals' claims for declaratory and injunctive relief were moot since the Out-of-State Cap Rate had been repealed and replaced. Among its findings, the court also held that although sovereign immunity generally protected the state from suit, that immunity was waived for contractual causes of action and proceedings brought before the Administrative Hearing Commission ("AHC") under section 208.156. The court granted DSS's motion to dismiss, and gave Hospitals leave to file an amended petition, recognizing that they might have a claim for breach of contract.

On January 4, 2005, Hospitals filed their amended petition "to declare and construe the terms of a Medicaid provider agreement" and to seek damages for breach of contract. In their petition, Hospitals asked the court: (1) to declare the invalid Out-of-State Cap Rate to be an unenforceable term of the Provider Agreements, (2) to construe the Provider Agreements as requiring DSS to reimburse Hospitals for their reasonable costs, (3) to declare DSS to be in breach of the Provider Agreements, and (4) to determine the proper reimbursement rate between April 1, 1994, and October 30, 2004, and to award damages amounting to the difference between that figure and what they were paid under the Out-of-State Cap Rate, plus interest.

The court entered its judgment on August 29, 2006, concluding that the Provider Agreements were valid contracts and that DSS breached them when it reimbursed Hospitals under the invalid Out-of-State Cap Rate. Since the Provider Agreements did not contain payment terms, and the invalid Out-of-State Cap Rate could not be given effect as a contract term, the court found that the valid regulation determining reimbursement rates for in-state hospitals, at 13 CSR 70-15.010(3), became part of the parties' contracts. The court awarded damages limited by the five-year statute of limitations in section 516.120.1, from June 9, 1999, through June 30, 2004. Thus, Overland Park Regional was awarded $912,699.26 and Menorah was awarded $640,956.58. Hospitals were denied prejudgment interest. Both parties appeal the judgment.

III. Standard of Review

The standard of review in a court-tried case is governed by Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). However, review of a case submitted on stipulated facts is articulated in Schroeder v. Horack, 592 S.W.2d 742, 744 (Mo. banc 1979). Thus, the only question before this court is whether the trial court drew the proper legal conclusions from the stipulated facts. Id. Even when reviewing stipulated facts, "we `must accept the evidence and inferences favorable to the prevailing party and disregard all contrary evidence.'" Gen. Motors Acceptance Corp. v. Windsor Group, Inc., 103 S.W.3d 794, 796 (Mo.App. E.D.2003) (quoting Sachs Elec. Co. v. HS Constr. Co., 86 S.W.3d 445, 453 (Mo.App. E.D.2002)). Questions of law are reviewed de novo. Smith v. Shaw, 159 S.W.3d 830, 832 (Mo. banc 2...