Seatoma Convalescent Center v. Department of Social and Health Services

• Decision Date: 12 April 1996
• Docket Number: Nos. 17822-2-I,17668-8-II and 17871-1-II,s. 17822-2-I
• Citation: 82 Wn.App. 495,919 P.2d 602
• Court: Washington Court of Appeals
• Parties: , 51 Soc.Sec.Rep.Ser. 313 SEATOMA CONVALESCENT CENTER, a Washington corporation, Appellant, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent. COLBY MANOR, INC., a Washington corporation; Moderncare West Seattle, Inc., a Washington corporation; and Pinecrest Manor Convalescent Home, Inc., a Washington corporation, Appellants, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent. Branch Villa Health Care Center, Inc., et al., Appellants, The Department of Social and Health Services, Respondent. KLR ASSOCIATES, INC., et al., Appellants, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent.

Page 495

82 Wn.App. 495

919 P.2d 602, 51 Soc.Sec.Rep.Ser. 313

SEATOMA CONVALESCENT CENTER, a Washington corporation, Appellant, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent.

COLBY MANOR, INC., a Washington corporation; Moderncare West

Seattle, Inc., a Washington corporation; and Pinecrest Manor Convalescent Home, Inc., a Washington corporation, Appellants, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent.

Branch Villa Health Care Center, Inc., et al., Appellants,

The Department of Social and Health Services, Respondent.

KLR ASSOCIATES, INC., et al., Appellants, v. The DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Respondent.

Nos. 17822-2-II, 17668-8-II and 17871-1-II.

Court of Appeals of Washington,

Division 2.

April 12, 1996.

Publication Ordered June 7, 1996.

As Amended on Denial of

Reconsideration July 19, 1996.

Robin Dale, Asst. Atty. Gen., Lacey, for Respondent

John Francis Sullivan, Thomas Huber Grimm, Inslee Best Doezie & Ryder PS, Bellevue, for Appellants.

HOUGHTON, Acting Chief Judge

In a consolidated appeal of three cases involving numerous nursing facilities, ¹ Seatoma and KLR challenge the Department of Social and Health Services' (DSHS) administrative determination of their Medicaid reimbursement rates in the nursing services and administration and operations cost centers. They argue that DSHS was required to reimburse the facilities for all of the necessary and ordinary expenses that were not expressly unallowable. DSHS cross-appeals the trial court's rulings in KLR and Branch Villa that DSHS must adopt an additional method to determine the cost increase

lid for the nursing services cost center. ² We affirm the trial court rulings on the reimbursement of the nursing services and the administration and operations cost centers. We reverse the trial court's ruling that DSHS must adopt an additional methodology to measure the nursing services cost lid

STATUTORY BACKGROUND

Medicaid is a federal program, under which the state and federal governments share the cost of providing nursing home care for low income individuals. Crista Senior Community v. Department of Social & Health Servs., 77 Wash.App. 398, 400-401, 892 P.2d 749 (1995)(citing Diversified Inv. Partnership v. Department of Social & Health Servs., 113 Wash.2d 19, 21, 775 P.2d 947 (1989)). Under this joint program, the federal government delegates authority to the states to administer Medicaid and to devise their own reimbursement systems, provided the systems comply with certain federal guidelines. Title XIX of the Social Security Act, codified at 42 U.S.C. 1396a, et seq.

In 1980, the Boren Amendment changed these guidelines to allow the states greater authority to control the continuing increase in nursing home costs. Folden v. Washington State Dep't of Social & Health Servs., 981 F.2d 1054, 1056 (9th Cir., 1992)(additional citation omitted); see also 42 U.S.C. § 1396a(a)(13)(A) (1988). The Boren Amendment allowed the states to limit reimbursement from "all reasonable costs to only those costs that 'must be incurred by efficiently and economically operated facilities' to provide the care that is required under federal and state quality standards." Folden, 981 F.2d at 1056. This change was designed to encourage providers to contain their costs and allow states greater flexibility to Furthermore, "[t]he Boren Amendment allows the states to adopt a 'prospective' rate-setting system, which sets out a predetermined rate that the provider will receive and, thus, encourages the provider to meet that rate or to absorb the loss if the provider's actual costs exceed that rate." Folden, 981 F.2d at 1056. Thus, the states have a great deal of flexibility in choosing the methods for computing rates, provided that the rates meet the federal requirements that they are both reasonable and adequate. Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990).

accommodate the reduction in federal Medicaid funds. Folden, 981 F.2d at 1056.

All the facilities in this appeal are Medicaid certified, skilled nursing facilities in Washington. DSHS pays these facilities to provide care to Medicaid recipients pursuant to RCW 74.46, Washington's Nursing Home Auditing and Cost Reimbursement Act of 1980, and the implementing regulations, WAC 388-96. Crista, 77 Wash.App. at 401, 892 P.2d 749. The statute and regulations are incorporated into all contracts between DSHS and the facilities. Crista, 77 Wash.App. at 401, 892 P.2d 749 (citing Caritas Servs., Inc. v. Department of Social & Health Servs., 123 Wash.2d 391, 396, 869 P.2d 28 (1994)).

As allowed by the Boren Amendment, Washington has adopted a " 'prospective cost-related reimbursement system,' " (Crista, 77 Wash.App. at 401, 892 P.2d 749 (quoting Caritas, 123 Wash.2d at 397, 869 P.2d 28)), which is set July 1st each year and " 'is comprised of various cost components referred to as cost centers.' " Crista, 77 Wash.App. at 401, 892 P.2d 749 (quoting Cascade Vista Convalescent Ctr., Inc. v. Department of Social & Health Servs., 61 Wash.App. 630, 633, 812 P.2d 104 (1991)); former RCW 74.46.420, ³ The facilities challenge DSHS's application of the reimbursement statute, arguing that DSHS erred by failing to reimburse all "necessary and ordinary" nursing services and administration and operations expenses; in applying the inflation adjustment factor to these cost centers; and in failing to account for actual staffing levels in 1990 (Seatoma & KLR). DSHS appeals, arguing that it is not required to use the facilities' proposed "hourly cost" method in calculating the nursing services cost increase lids (Branch Villa & KLR).

                .460(1), 4 .470. 5  The prospective rate is determined by calculating a facility's allowable costs in each cost center for the prior calendar year, adjusting for the legislatively set economic conditions and trends, and applying the cost lids and limitations in the statute.  Former RCW 74.46.420(2); 6  Folden v. Washington State Dep't of Social & Health Servs., 744 F.Supp. 1507, 1512 (W.D.Wash., 1990), aff'd, 981 F.2d 1054 (9th Cir.1992)
                

The nursing services cost center includes "all costs related to the direct provision of nursing and related care, including fringe benefits and payroll taxes for the nursing and related care personnel." Former RCW 74.46.481(1) (1989), Laws of 1987, ch. 476, § 5. This cost center is subject to two lids: (1) a lid on the number of hours of nursing care reimbursed ("staffing lid"), taking into account patient characteristics (former RCW 74.46.481(3)); and (2) a lid on the rate of increase of nursing costs ("cost lid")(former RCW 74.46.481(5)). Crista, 77 Wash.App. at 401-02, 892 P.2d 749 (citing Folden, 744 F.Supp. at 1513).

The "staffing lid" is always applied; the "cost lid" is applied when the facility's cost increase exceeds the nursing cost index used by DSHS. Crista, 77 Wash.App. at 402, 892 P.2d 749 (citing former RCW 74.46.481(5), (6)). Pursuant to former RCW 74.46.481(6):

If a facility's nursing staff level is below the limit specified in subsection (3) of this section, [DSHS] shall determine the percentage increase for all items included in the nursing services cost center between the facility's most recent cost reporting period and the next prior cost reporting period.

(a) If the percentage cost increase for a facility is below the increase in the selected index for the same time period, the facility's reimbursement rate in the nursing services cost center shall equal the facility's cost from the most recent cost reporting period plus any allowance for inflation provided by legislative appropriation.

(b) If the percentage cost increase for a facility exceeds the increase in the selected index, [DSHS] shall limit the cost used for setting the facility's rate in the nursing services cost area to a level reflecting the increase in the selected index.

Pursuant to former RCW 74.46.481(7):

If a facility's nursing staff level exceeds the reasonableness limit established in subsection (3) of this section, [DSHS] shall determine the increase for all items included in the nursing services cost center between the facility's most recent cost reporting period and the next prior cost reporting period.

(a) If the percentage cost increase for a facility is below the increase in the index selected pursuant to subsection (5) of this section, the facility's reimbursement rate in the nursing cost center shall equal the facility's cost from the most recent cost reporting period adjusted downward to reflect the limit on nursing staff, plus any allowance for inflation provided by legislative appropriation subject to the provisions of subsection (4) of this section.

(b) If the percentage cost increase for a facility exceeds the increase in the selected index, [DSHS] shall limit the cost used for setting the facility's rate in the nursing services cost center to a level reflecting the nursing staff limit and the cost In fact, DSHS begins "with the 'next prior cost reporting period,' inflates upward by the index amount, and compares the inflated figure with the 'most recent cost reporting period.' " Crista, 77 Wash.App. at 402, 892 P.2d 749 (quoting former RCW 74.46.481(6)). The inflation adjustment factor applied to the nursing services cost center is determined by the Legislature in the biennial budget act, and is applied to a prior period rate when that prior period rate forms the basis for the next period rate. Former RCW 74.46.495 (1989), Laws of 1983, 1st ex. sess., ch. 67, § 26.

increase limit, subject to the provisions of subsection (4) of this section, plus any allowance for inflation provided by legislative appropriation.

The administration and operations cost center includes "all items not included in the cost centers of nursing services, food, and property." Former RCW 74.46.500(1)(1989), Laws of 1980, ch. 177, § 50. The administration and operations costs are capped at the 85th percentile of the...