Missouri Dept. of Social Services, Div. of Medical Services v. Great Plains Hosp., Inc.

• Decision Date: 16 July 1996
• Docket Number: No. WD,WD
• Citation: 930 S.W.2d 429
• Parties: MISSOURI DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Appellant, v. GREAT PLAINS HOSPITAL, INC., d/b/a Heartland Hospital, Respondent. 51660.
• Court: Missouri Court of Appeals

Page 429

930 S.W.2d 429

52 Soc.Sec.Rep.Ser. 52

MISSOURI DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Appellant, v. GREAT PLAINS HOSPITAL, INC., d/b/a Heartland Hospital, Respondent.

No. WD 51660.

Missouri Court of Appeals Western District.

July 16, 1996.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Aug. 27, 1996.

Application to Transfer Denied

Oct. 22, 1996.

Kathleen Knepper, Missouri Department of Social Services, Jefferson City, Charles A. Miller, Caroline M. Brown, Covington & Burling, Washington, DC, for appellant.

Byron J. Gross, Jonathan P. Neustadter, Hooper, Lundy & Bookman, Los Angeles, CA, Thomas W. Rynard, Terry C. Allen, Craft, Fridkin & Rhyne, Jefferson City, for respondent.

Before SPINDEN, P.J., and BRECKENRIDGE and ELLIS, JJ.

ELLIS, Judge.

The Missouri Department of Social Services Division of Medical Services ("DMS") brings this appeal challenging an order entered by the Circuit Court of Cole County awarding injunctive and monetary relief to Great Plains Hospital Inc. d/b/a Heartland Hospital ("Heartland"). Adopting findings of the Administrative Hearing Commission ("AHC"), the circuit court found that a DMS cap on Medicaid reimbursement for psychiatric services violated procedural provisions of federal Medicaid law and the "reasonable cost" reimbursement provision of § 208.152. ¹

The Medicaid Act, 42 U.S.C. § 1396 et seq. (1992), authorizes federal grants to help states provide medical assistance to certain low-income individuals. Participation in the program is voluntary, but in exchange for federal funding, participating states must comply with the requirements imposed by the Act and with regulations promulgated by the Secretary of Health and Human Services. Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455 (1990).

Each participating state is required to submit to the Health Care Financing Administration ("HCFA") ² a "plan for medical assistance" comprehensively describing the nature and scope of that state's Medicaid program. Id.; AMISUB (PSL), Inc. v. Colorado Dep't of Social Servs., 879 F.2d 789, 794 (10th Cir.1989), cert. denied, 496 U.S. 935, 110 S.Ct. 3212, 110 L.Ed.2d 660 (1990) (citing 42 U.S.C. § 1396). Within this plan, the state is required to establish a scheme for reimbursing health care providers for the medical services they provide to Medicaid patients. Wilder, 496 U.S. at 499-502, 110 S.Ct. at 2513. The 1981 "Boren Amendment" to the Medicaid Act spells out this requirement:

A state plan for medical assistance must ... provide ... for payment ... of the hospital services ... through the use of rates ... which the state finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access ... to inpatient hospital services of adequate quality.

42 U.S.C. § 1396a(a)(13)(A)(1992).

Prior to January 1, 1990, health care providers within the Missouri Medicaid program received reimbursements from DMS based on a per-diem rate. The per-diem rate was calculated for each provider by dividing the provider's total allowable Medicaid inpatient costs by its total Medicaid inpatient days of stay. 13 C.S.R. 70-15.010(3). The per-diem rate was a "blended" rate because it reimbursed providers at the same rate regardless of the type of care rendered. For example, an acute care hospital providing both acute and psychiatric care was reimbursed at the same rate for both types of care even though acute care often has a higher cost than psychiatric care. The per-diem rate included an adjustment which increased the rate to account for inflation, a process referred to as "trending forward." 13 C.S.R. 70-15.010(1).

In 1990, in response to what it considered to be runaway growth in psychiatric care costs, DMS placed a ceiling or "cap" on the per diem reimbursement rates for certain inpatient psychiatric services. ³ Pursuant to 13 C.S.R. 70-15.010(15):

Effective for admissions beginning on or after January 1, 1990, certain psychiatric services will be reimbursed at the lower of the hospital's Title XIX per-diem rate or an inpatient psychiatric per diem of two hundred seventy-seven dollars ($277).... The inpatient psychiatric per diem is based on one hundred ten percent (110%) of the 1988 weighted average cost for instate, freestanding, nonstate-operated psychiatric units. The psychiatric rate will be adjusted by the inflation factor described in subsection (1)(F) granted on or after January 1, 1990.

The amount of the cap was determined by a DMS auditor who evaluated the psychiatric care costs reported by nine freestanding private psychiatric hospitals or psychiatric units participating in the Missouri Medicaid program. The auditor examined each facility's Medicaid cost reports for fiscal year 1988 and calculated a weighted average per-diem cost of $252.05. Certain ancillary costs were omitted from the analysis and the resulting per-diem figure because the DMS "Provider Manual" indicated DMS did not reimburse for such services. ⁴ The auditor increased this average per-diem cost figure by an inflation trend factor of 10% established by DMS based on the Gross National Product Implicit Price Deflator. Using this methodology, DMS determined the per-diem cap on Medicaid reimbursement to be $277.00 per patient day. As a result, a provider would be paid at the lower of its blended per-diem rate or the cap rate for the covered psychiatric services it rendered.

Since its initial calculation, the psychiatric cap has increased as a result of a few modifying calculations. Effective July 1, 1990, DMS increased all per-diem rates, including the psychiatric cap, by a trend factor of one and one-half percent (1.5%), ⁵ raising the cap to $280.42 per patient day. In 1992, utilizing the same methodology as the original cap, the same DMS auditor rebased the psychiatric cap with each provider's reported Medicaid costs for fiscal year 1990. The auditor calculated the 1990 weighted average cost to have been $326.37 per patient day. The auditor then trended this figure forward to arrive at a total per-diem reimbursement cap of $344.66 per patient day, effective October 1, 1992.

On May 22, 1992, Heartland submitted a complaint to the AHC challenging the validity of the psychiatric reimbursement cap. The AHC held hearings on April 13, April 14, July 1, and July 2 of 1993. The commission issued its Findings of Fact and Conclusions of Law on July 7, 1994, making findings of fact but concluding it lacked the authority to declare a regulation invalid in order to grant Heartland relief. (The Commissioner cited to State Tax Comm'n v. Administrative Hearing Comm'n, 641 S.W.2d 69 (Mo. banc 1982), for this proposition).

Both DMS and Heartland petitioned for review of the AHC decision in the Circuit Court of Cole County. On June 21, 1995, the circuit court issued an order adopting the AHC findings and invalidating the psychiatric cap. The circuit court ordered the state to pay Heartland the difference between what was actually paid and what would have been paid without the cap. DMS now challenges the decision of the circuit court.

In an administrative review case, the appellate court will review the decision of the Administrative Hearing Commission (AHC) rather than that of the circuit court. City of Cabool v. Missouri State Bd. of Mediation, 689 S.W.2d 51, 53 (Mo. banc 1985). "Generally, we are limited to determining whether the decision of the AHC is supported by substantial competent evidence based on the record as a whole, as well as whether it is arbitrary, capricious, or unreasonable, or whether there was an abuse of discretion by the Commission." Southeast Missouri Hosp. Ass'n v. Missouri Dep't of Social Servs., 886 S.W.2d 94, 97 (Mo.App. W.D.1994). However, where the pertinent facts are undisputed between the parties, as in the case at bar, this court will review the matter as a question of law. Department of Social Servs. v. Our Lady of Mercy Home, 803 S.W.2d 72, 75 (Mo.App. W.D.1990). Therefore, we give no deference to either the AHC's or the circuit court's conclusions of law; rather, this court will exercise its independent judgment and draw its own conclusions from the AHC's findings. Southeast Missouri Hosp. Ass'n, 886 S.W.2d at 97; Gordon A. Gundaker Real Estate Co. v. Missouri Real Estate Comm'n, 878 S.W.2d 466, 468-69 (Mo.App. E.D.1994); St. Louis S. Park, Inc. v. Missouri Dep't of Social Servs., 857 S.W.2d 304, 306 (Mo.App. W.D.1993); Our Lady of Mercy Home, 803 S.W.2d at 75.

DMS's first four points attack the lower court's determinations that the psychiatric cap violated the procedural requirements of the Boren Amendment, that the cap did not comply with federal requirements relating to disproportionate share hospitals, that the psychiatric cap failed to meet the "reasonable cost" standard required by Missouri statute, and that the cap was improperly calculated. We conclude DMS failed to comply with the procedural requirements of the Boren Amendment. As that decision is dispositive, we need not consider the other bases for the lower court's decision. ⁶

In order to comply with the procedural requirements of the Boren Amendment, a state agency must engage in a two-step process. The state must first make "findings" that its reimbursement rates "are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards." 42 C.F.R. § 447.253(b)(1)(1992). These findings must be made every time the state Medicaid agency "makes a change in its...