Rolla Manor, Inc. v. Missouri Dept. of Social Services, Div. of Medical Services

Citation865 S.W.2d 812
Decision Date22 October 1993
Docket NumberNo. 18535,18535
PartiesROLLA MANOR, INC., D/B/A Rolla Manor Care Center, Plaintiff-Respondent, v. MISSOURI DEPARTMENT OF SOCIAL SERVICES, DIVISION OF MEDICAL SERVICES, Defendant-Appellant.
CourtCourt of Appeal of Missouri (US)

Richard Beaver, Dept. of Social Services, Div. of Legal Services, Jefferson City, for defendant-appellant.

Husch & Eppenberger, Mark G. Arnold, St. Louis, Harvey M. Tettlebaum and Barbara Miltenberger, Jefferson City, for plaintiff-respondent.

GARRISON, Judge.

The Missouri Department of Social Services, Division of Medical Services (the Department), appeals from a judgment holding that a regulation establishing a new method of calculating amounts to be paid to nursing homes participating in the Missouri Medicaid program denies equal protection of the law. The respondent, Rolla Manor, Inc., d/b/a Rolla Manor Care Center (Rolla Manor), operates a nursing home providing long-term care to Medicaid recipients.

FACTS

On June 18, 1990, the Department published in the Missouri Register an emergency regulation (the New Plan), later codified at 13 C.S.R. § 70-10.010, which established a new method of calculating per diem rates to be paid nursing homes participating in the Medicaid program. The regulation was to take effect July 1, 1990. The rate of per diem reimbursement under the New Plan was to be the greater of two calculations: (1) the allowable cost 1 per patient day determined by the Department from a desk-reviewed and/or field-audited cost report 2 covering a period ending in calendar year 1988, multiplied by 111.1% (thereby providing an 11.1% increase) plus $1.06 as a minimum wage adjustment 3; or (2) the per diem rate in effect for services rendered on June 30, 1990. The first alternative provided the greater per diem rate for Rolla Manor, resulting in a rebased rate of $39.75.

Rolla Manor filed a complaint with the Administrative Hearing Commission (AHC) alleging that the New Plan violated equal protection of the law by not treating all providers equally. The basis of the complaint was that some participating nursing homes had fiscal years ending December 31, 1988, and therefore the 11.1% increase was applied to an allowable cost that necessarily included inflation during the entire year. In contrast, Rolla Manor claimed the New Plan discriminated against it because its fiscal year ended March 31, 1988, and its allowable cost to which the 11.1% increase was applied did not include inflation experienced between the end of its fiscal year and December 31, 1988.

The AHC found that the 11.1% adjustment factor under the New Plan represented an inflation adjustment of 3.7% per year for the three-year period of July 1, 1988 to June 30, 1991. It also found that because Rolla Manor had a fiscal year ending earlier than other facilities whose fiscal year ended on December 31, 1988, its new rate reflected less inflation and that "[p]articipants whose fiscal years end on December 31 receive the benefit of having the inflation they experienced from July 1, 1988, through December 31, 1988, counted twice--first in the 1988 allowable costs, which already reflect that inflation, and again in the 11.1 percent inflation adjustment, which includes one-half of 3.7 percent for that period." The Commission concluded, however, that it did not have authority to determine the constitutional validity of the regulation and denied the complaint.

Rolla Manor then sought a review by the circuit court, which held that the Department's application of the 11.1% adjustment violated equal protection guarantees by not

                treating similarly situated providers equally.  It ordered the Department to increase Rolla Manor's per diem rate to reflect the inflation that had been allowed to other nursing homes with a fiscal year ending on December 31. 4  This appeal followed
                
DECISION

The Department raises two points on this appeal: (1) the trial court erred in finding that the New Plan violated Rolla Manor's equal protection guarantees because it applied an incorrect legal standard; and (2) even if the New Plan facially created a separate class that was treated differently, equal protection guarantees were not violated because the classification was rationally related to a legitimate governmental interest of controlling costs of the Medicaid program. Because we have concluded that we must reverse on the basis of Point II, Point I will not be discussed.

Distinctions made when a state distributes benefits unequally are subject to scrutiny under the Equal Protection Clause of the Fourteenth Amendment. Hooper v. Bernalillo County Assessor, 472 U.S. 612, 618, 105 S.Ct. 2862, 2866, 86 L.Ed.2d 487, 493 (1985). If, however, state action neither creates a classification which burdens a "suspect class" nor impinges on a "fundamental right," it will survive an equal protection challenge if the classification is rationally related to a legitimate state interest (rational basis test). Adams v. Children's Mercy Hospital, 832 S.W.2d 898, 903 (Mo. banc 1992); Mahoney v. Doerhoff Surgical Services, 807 S.W.2d 503, 512 (Mo. banc 1991).

The trial court found that participation in the Medicaid program was voluntary and did not constitute a fundamental right, and that Rolla Manor was not a member of a suspect class. Neither of the parties suggests that those findings were inappropriate, and they agree that the correct standard for reviewing the equal protection claim in the instant case is the rational basis test.

Under the "rational basis" test, a classification must be sustained unless it is "patently arbitrary" and bears no rational relationship to a legitimate governmental interest. Frontiero v. Richardson, 411 U.S. 677, 683, 93 S.Ct. 1764, 1768, 36 L.Ed.2d 583, 589 (1973). The test was described in Mahoney v. Doerhoff Surgical Services, 807 S.W.2d at 512, as follows:

Since the equal protection guarantee is directed against invidious discrimination, that "constitutional safeguard is offended only if the classification rests on grounds wholly irrelevant to the achievement of the state's objective.... A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it."

See also Adams v. Children's Mercy Hospital, 832 S.W.2d at 903. There is a strong presumption that a statute or regulation conferring money benefits is constitutional. Mathews v. DeCastro, 429 U.S. 181, 185, 97 S.Ct. 431, 434, 50 L.Ed.2d 389, 394 (1976). See also, Mahoney v. Doerhoff Surgical Services, 807 S.W.2d at 512.

The trial court in the instant case found that the purpose of the New Plan was to compensate for inflation, and that application of the 11.1% adjustment to Rolla Manor's allowable cost, based on its cost report for the fiscal year ending March 31, 1988, was not rationally related to that purpose. It therefore treated the New Plan as lacking a rational relationship to a legitimate state interest. We conclude that the trial court erred in this regard. The Western District has also recently held, in a case involving the same issue, that the New Plan does not violate equal protection rights. St. Louis South Park v. Missouri DSS, 857 S.W.2d 304 (Mo.App.1993).

The purpose of the Medicaid program is to provide medical assistance to needy persons whose income and resources are insufficient to meet the expenses of health care. Couch v. Director, State DFS, 795 S.W.2d 91, 93 (Mo.App.1990); Mo. State Div. of Family Services v. Barclay, 705 S.W.2d 518, 521 (Mo.App.1985). Section 208.159 5 provides, in part, that "... the department of social services shall administer payments for nursing home services ..." and "[t]he department shall ... promulgate rules and regulations for the purpose of administering such payments, including rules to define the reasonable costs, manner, extent, quality, charges and fees or payments for nursing home services." Section 208.152 requires that payments be made on the basis of reasonable cost of the care or reasonable charge for the services as defined and determined by the Department.

Prior to 1981, reimbursement was retrospective, which was essentially a cost-pass-through plan devoid of any incentive for cost containment measures. AGI-Bloomfield Convalescent Center v. Toan, 679 S.W.2d 294, 298 (Mo.App.1984). Since 1981 the basis for reimbursement has been prospective. As a prospective plan, Medicaid is not intended to compensate for the actual costs of the providers. 42 U.S.C.A. § 1396a(a)(13)(A) provides that nursing homes are to be reimbursed at rates which "are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities...." See Mo. Dept. of Soc. Serv. v. AGI-Bloomfield, 682 S.W.2d 166, 169 (Mo.App.1984).

The purpose under Medicaid, therefore, is to provide reasonable reimbursement to participating providers while incorporating cost containment measures. Significantly the New Plan is designed to rebase reimbursement by utilizing "allowable" as opposed to actual costs to arrive at a new rate which contemplates anticipated cost increases.

The state has a legitimate governmental interest in providing Medicaid services to...

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