Rescare Health Servs., Inc. v. Ind. Family & Soc. Servs. Admin. Office of Medicaid Policy & Planning

• Decision Date: 05 April 2022
• Docket Number: Supreme Court Case No. 21S-MI-372
• Citation: 184 N.E.3d 1147
• Parties: RESCARE HEALTH SERVICES, INC., Appellant (Plaintiff below), v. INDIANA FAMILY & SOCIAL SERVICES ADMINISTRATION – OFFICE OF MEDICAID POLICY AND PLANNING, Appellee (Defendant below).
• Court: Indiana Supreme Court

184 N.E.3d 1147

RESCARE HEALTH SERVICES, INC., Appellant (Plaintiff below),

v.INDIANA FAMILY & SOCIAL SERVICES ADMINISTRATION – OFFICE OF MEDICAID POLICY AND PLANNING, Appellee (Defendant below).

Supreme Court Case No. 21S-MI-372

Supreme Court of Indiana.

Argued: October 21, 2021

Filed April 5, 2022

ATTORNEY FOR APPELLANT: Mark J. Crandley, Barnes & Thornburg LLP, Indianapolis, Indiana

ATTORNEYS FOR APPELLEE: Theodore E. Rokita, Attorney General of Indiana, Aaron T. Craft, Benjamin M. L. Jones, Office of the Attorney General, Indianapolis, Indiana

ATTORNEY FOR AMICUS CURIAE INDIANA MENTOR: Paul L. Jefferson, McNeelyLaw, LLP, Indianapolis, Indiana

On Petition to Transfer from the Indiana Court of Appeals, No. 20A-MI-1025

Massa, Justice.

After being denied Medicaid reimbursement for over-the-counter medicines prescribed to its patients, ResCare Health Services, Inc. unsuccessfully sought administrative and judicial review, including a request for declaratory judgment. But the trial court concluded the request was insufficiently pleaded and ResCare's patients needed to be added to the litigation. Without determining whether the issue was sufficiently pleaded, the Court of Appeals affirmed, agreeing that the patients needed to be added before a declaratory judgment could be issued.

While we summarily affirm the disposition of ResCare's other arguments, we disagree that its declaratory judgment request should not be considered on the merits. Under Indiana's notice pleading standards, ResCare sufficiently pleaded its declaratory judgment request. And its patients need not be sued for ResCare to seek declaratory relief blocking a government enforcement action. We reverse and remand for the trial court to consider the declaratory judgment request on the merits.

Facts and Procedural History

ResCare operates private intermediate care facilities across Indiana for individuals with intellectual disabilities. These facilities are reimbursed for the care provided to Medicaid recipients at a per diem rate, which "includes all services provided to patients by the facility." 405 Ind. Admin. Code 1-12-21(b) (2014). The per diem rate is subject to adjustments based on annual cost reports submitted by facilities to the Indiana Family & Social Services Administration's Office of Medicaid Policy and Planning (FSSA). For its 2014 cost report, ResCare sought to include the cost of over-the-counter medicines, like allergy relief tablets, that had been prescribed to its patients. But these medicines are not included on the FSSA's Over-the-Counter Drug Formulary, the list of pre-approved medicines and doses that pharmacies use to seek compensation under the Medicaid program. Because the pharmacy did not get reimbursed by Medicaid when dispensing the allergy relief tablets and other over-the-counter medications, it billed ResCare. ResCare included this amount—approximately $40,000—in its cost report to the FSSA. The FSSA's auditor adjusted the cost reports to prevent ResCare from recovering costs for the over-the-counter medicines. ResCare unsuccessfully requested administrative reconsideration.

ResCare then petitioned for administrative review of the adjustment and "asked for a determination that it could charge patient accounts if the agency determined that [over-the-counter] drugs could not be included in the per diem rate." Appellant's App. Vol. II, p.8. After both parties moved for summary judgment, the administrative law judge, or ALJ, found that only pharmacy providers may seek reimbursement under Medicaid for over-the-counter medicines, and even they may not seek reimbursement for drugs not included on the Drug Formulary. And because the ALJ concluded that over-the-counter medicines are not included in the list of services that may be covered by the per diem rate under 405 I.A.C. 5-13-3, the ALJ recommended granting summary judgment to the FSSA on that issue and "declined to address the second issue regarding declaratory judgment." Id. ResCare appealed, and the final agency authority affirmed the ALJ and agreed that costs for the non-Formulary over-the-counter medicines could not be included in ResCare's per diem rate. The FSSA also concluded it could not rule on whether ResCare could charge its patients for the unreimbursed costs for those medicines because the issue was not ripe, and a declaratory judgment was beyond the scope of an administrative proceeding.

ResCare petitioned for judicial review, arguing it should be reimbursed for the over-the-counter medicines through the per diem rate, and it would be subject to an unconstitutional taking if the costs are not included in that rate unless it is permitted to charge its patients’ personal accounts for these costs. The trial court affirmed the agency's final decision, concluding that non-Formulary, over-the-counter medicines are not reimbursable under Indiana's Medicaid rules. It also rejected ResCare's takings claim. And even though ResCare requested the declaratory judgment, the trial court declined to issue it because ResCare only sought judicial review, "which did not include a separate claim for a declaratory judgment." Id. , p.12. Moreover, the trial court found the "issue of whether or not ResCare may bill its [patients’] personal accounts inherently affects the interests of those [patients], and they are not parties to this action." Id.

ResCare appealed, and the Court of Appeals affirmed. The panel found that "state-run facilities are explicitly authorized to be reimbursed for pharmaceutical products," while the authorization for private facilities like ResCare only has the "broad-sweeping encompassing language of ‘all medical and nonmedical supplies and equipment’ without further differentiation." ResCare Health Servs., Inc. v. Ind. Fam. & Soc. Servs. Admin. , 169 N.E.3d 864, 870 (Ind. Ct. App. 2021). If the term had been intended to include pharmaceutical products like over-the-counter medicines, "there would be no need to separately include these as a permissible per diem component for state-owned facilities." Id. at 871. Thus, the over-the-counter medicines were excluded from the per diem rate of private facilities like ResCare. Id. The panel also rejected ResCare's takings claim because it "voluntarily undertook the obligations and costs of participating in Indiana's Medicaid program." Id. at 873. And finally, "[w]ithout deciding whether ResCare's request for declaratory judgment was sufficiently pleaded," the panel affirmed the trial court's denial, because ResCare "did not join the [patients] as parties to the current litigation." Id. at 874.

ResCare sought transfer, which we granted. ResCare Health Servs., Inc. v. Ind. Fam. & Soc. Servs. Admin. , 172 N.E.3d 275 (Ind. 2021). Indiana Mentor, another healthcare provider for individuals with intellectual disabilities, filed an amicus brief supporting ResCare.

Standard of Review

"We may set aside an agency action only if, relevant here, it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ " Culver Cmty. Tchrs. Ass'n v. Ind. Educ. Emp. Rels. Bd. , 174 N.E.3d 601, 604 (Ind. 2021) (quoting Ind. Code § 4-21.5-5-14(d)(1) (2014) ). Ordinarily, the party seeking judicial review has the burden of demonstrating the action's invalidity. I.C. § 4–21.5–5–14(a). Here, ResCare also requested a declaratory judgment. A trial court's decision whether to allow a declaratory judgment to proceed is typically reviewed for an abuse of discretion. KLLM, Inc. v. Legg , 826 N.E.2d 136, 144 (Ind. Ct. App. 2005), trans. denied. However, the trial court's decision was not made on the merits, but rather because it concluded other parties needed to be joined. We also review trial court decisions on the required joinder of parties for an abuse of discretion. Ball State Univ. v. Irons , 27 N.E.3d 717, 722 (Ind. 2015).

Discussion and Decision

While we summarily affirm the Court of Appeals on the first two issues, see Ind. Appellate Rule 58(A)(2), we write to address the declaratory judgment issue. As its alternative argument, ResCare requested a declaratory judgment stating that it could charge patient accounts for the costs of the over-the-counter drugs that fell outside Medicaid. Despite the trial court acknowledging that ResCare "request[ed]" this declaratory judgment, it declined to issue one because ResCare did not file a separate complaint, the declaratory judgment claim was not sufficiently pleaded, and the patients should have been joined to the litigation. Appellant's App. Vol. II, p.12. We first address whether ResCare needed to file a separate complaint for a declaratory judgment, and, if not, then whether it sufficiently pleaded its declaratory judgment claim. Because we ultimately conclude ResCare did not need to file a separate complaint and it sufficiently pleaded its declaratory judgment claim, we then turn to whether ResCare's patients need to be joined. We conclude they do not, so we reverse and remand.

I. ResCare did not need to file a separate complaint for a declaratory judgment.

The trial court denied ResCare's declaratory judgment request, in part, because ResCare did not file a separate complaint for a declaratory judgment. The FSSA argued the trial court's review in a "judicial action is limited to a review of the administrative proceedings," and the trial court does not have the authority to issue relief, like a declaratory judgment, that "the agency was not authorized to issue." Appellant's App. Vol. III, pp. 231–32. Under that argument, ResCare could never obtain a declaratory judgment without filing a separate complaint, which would likely be consolidated with its judicial review petition. While the FSSA is correct that it cannot issue a declaratory judgment, it is incorrect that the trial court cannot. See I.C. § 34-14-1-1. The suggestion that ResCare needed to file a separate complaint is flawed, and in direct opposition to our judicial system's principles of judicial economy and the...