National Health Corp. v. Snodgrass

• Decision Date: 01 August 1977
• Citation: 555 S.W.2d 403
• Parties: NATIONAL HEALTH CORPORATION et al., Appellants, v. William R. SNODGRASS et al., Appellees.
• Court: Tennessee Supreme Court

Page 403

555 S.W.2d 403

NATIONAL HEALTH CORPORATION et al., Appellants, v. William R. SNODGRASS et al., Appellees.

Supreme Court of Tennessee.

Aug. 1, 1977.

Rehearing Denied Sept. 17, 1977.

Richard F. LaRoche, Jr., Murfreesboro, for appellants.

Frank J. Scanlon, Asst. Atty. Gen., Brooks McLemore, Jr., Atty. Gen., Nashville, for appellees.

OPINION

COOPER, Chief Justice.

The National Health Corporation (NHC) and its Tennessee subsidiaries have appealed from decrees entered in the Chancery Court of Davidson County dismissing two actions in which appellants sought a review of audits made by the Comptroller of the State of Tennessee. One action challenged the comptroller's audit report on the NHC Home Office for the period of October 1, 1973, through March 31, 1975. The second action challenged the comptroller's audit report covering the operation of the Oakwood Hall Nursing Home, Inc., a subsidiary of NHC, for the fiscal year ending September 30, 1974, and the conclusion that Oakwood should refund $2,771.29 to the State of Tennessee and $9,026.11 to individual program patients and their families. In both actions, appellants sought to have the chancery court review the audit reports under the Tennessee Uniform Administrative Procedures Act, T.C.A. § 4-502 et seq., or, in the alternative, by common law or statutory writ of certiorari. On considering motions to dismiss filed by appellees, Comptroller of the Treasury and the Department of Public Health, the chancellor concluded that the actions of the state officials that were the bases of the complaints were administrative and not subject to judicial review by writ of certiorari. The chancellor also concluded that the audit reports were not "contested" cases and, consequently, were not reviewable under the Administrative Procedures Act. The chancellor then dismissed both actions.

This appeal presents the primary question: Is an audit of an intermediate care facility by the comptroller under the Tennessee Medical Assistance Act of 1968 subject to judicial review either under the Tennessee Administrative Procedures Act or by common law or statutory writ of certiorari. We agree with the chancellor that it is not.

The National Health Corporation (NHC) is the owner of the other nineteen plaintiff corporations, each of which owns and operates nursing homes (intermediate care facilities or ICF) in Tennessee. Each of the nursing homes contracted with the Tennessee Department of Public Health to participate in a program of health care under the Tennessee Medical Assistance Act of 1968, Title 14, Chapters 19 and 20 of the Tennessee Code Annotated. The Medical Assistance Act, among other things, provides for payments to health care providers who render medical services, including nursing home services, to indigent Tennessee citizens.

Under the Act, the comptroller annually determines the rate at which each intermediate care facility will be reimbursed by the Tennessee Department of Public Health. T.C.A. § 14-2006. The reimbursement rate is based upon cost information submitted by the ICF from the preceding fiscal year and is calculated by the comptroller on the basis of the actual per diem cost to an ICF in rendering care to an individual patient. T.C.A. § 14-2005. Cost reports submitted to the comptroller by the ICF's are required to be prepared "in accordance with the Medicare-Medicaid principles of cost reimbursement as stipulated in the Medicare Provider Reimbursement Manual, as updated. . . ." Rules and Regulations of the State of Tennessee, Rule 0380-1-10-.07.

In making its cost report, each of the plaintiff subsidiary corporations included in its cost of operation a "management fee" paid to the parent corporation, National Health Corporation. The comptroller audited NHC for the period September 30, 1973, through March 31, 1975, to determine what services were rendered by NHC to its subsidiaries in exchange for the payment of the management fee. The comptroller also audited the Oakwood Hall Nursing Home, Inc., a subsidiary of NHC.

Following his usual practice, on completion of the audits the comptroller sent preliminary drafts of the audits to the corporations being audited, asked for comments, and had an "exit" conference for discussion of the preliminary audit with representatives of the corporations audited.

In the final audit of NHC the comptroller, among other things, reported that the management fees NHC charged its subsidiary health care facilities, which were included in patient cost, exceeded the actual cost of services NHC rendered the subsidiaries. The comptroller also indicated that he would audit each subsidiary ICF corporation to obtain further patient cost information.

NHC asked for a rehearing of the "audit report," stating it did so under the Tennessee Uniform Administrative Procedures Act (T.C.A. § 4-502 et seq.). The comptroller, being of the opinion the Tennessee Uniform Administrative Procedures Act did not cover an audit review, declined to have a "rehearing."

The final audit of Oakwood Hall Nursing Home, following on the heels of the NHC audit, reported that Oakwood Hall had overcharged patients and had overcollected funds from the State of Tennessee. On receipt of the audit, the Tennessee Department of Public Health notified Oakwood Hall that the Department would withhold from the next regularly scheduled...