Seneca Nursing Home v. Secretary of Social and Rehabilitation Services of Kansas

• Decision Date: 05 October 1979
• Docket Number: No. 77-1385,77-1385
• Parties: SENECA NURSING HOME, Woodlawn Nursing Home, Inc., Kenwood View Nursing Home, Halstead Nursing Center, Inc., Northeast Nursing Center, Inc., North Central Nursing Center, Topeka Convalescent Center, Eventine Convalescent Center, Inc., Ivy Manor Nursing Home, Inc., Stafford Homes, Green Meadows Nursing Center, Inc., Terrace Gardens Skilled Nursing Center, Cedar House, Inc., et al., Plaintiffs-Appellees, v. The SECRETARY OF SOCIAL AND REHABILITATION SERVICES OF KANSAS (Substituted for the Kansas State Board of Social Welfare), Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1309

604 F.2d 1309

SENECA NURSING HOME, Woodlawn Nursing Home, Inc., Kenwood View Nursing Home, Halstead Nursing Center, Inc., Northeast Nursing Center, Inc., North Central Nursing Center, Topeka Convalescent Center, Eventine Convalescent Center, Inc., Ivy Manor Nursing Home, Inc., Stafford Homes, Green Meadows Nursing Center, Inc., Terrace Gardens Skilled Nursing Center, Cedar House, Inc., et al., Plaintiffs-Appellees, v. The SECRETARY OF SOCIAL AND REHABILITATION SERVICES OF KANSAS (Substituted for the Kansas State Board of Social Welfare), Defendant-Appellant.

No. 77-1385.

United States Court of Appeals Tenth Circuit.

Argued Sept. 28, 1978.

Decided Aug. 24, 1979.

Rehearing Denied Oct. 5, 1979.

T. Richard Liebert of Liebert & Liebert, Coffeyville, Kan., and Jack A. Quinlan of Scott, Quinlan & Hecht, Topeka, Kan., for plaintiffs-appellees.

Bruce A. Roby, Topeka, Kan. (Charles V. Hamm, Topeka, Kan., with him on the brief), for Secretary of Social and Rehabilitation Services of Kansas, for defendant-appellant.

Before McWILLIAMS, McKay and LOGAN, Circuit Judges.

LOGAN, Circuit Judge.

This case concerns payments due sixteen Kansas nursing homes for services provided to welfare patients under state-administered federally-aided programs. A class action suit was brought on behalf of the nursing homes against the Kansas State Board of Social Welfare, now the Secretary of Social and Rehabilitation Services (SRS). The case was removed from state to federal court, where the various causes of action, except the determination of the precise amounts owing each nursing home, were tried and determined in favor of the nursing homes. In Seneca Nursing Home v. Kansas State Board of Social Welfare, 490 F.2d 1324 (10th Cir.), Cert. denied, 419 U.S. 841, 95 S.Ct. 72, 42 L.Ed.2d 69 (1974), we upheld the removal as involving federal questions under the Social Security Act. We affirmed the ruling of the trial court that the nursing homes were entitled to payment under Kan.Stat.Ann. § 39-708(x) according to the standard of "reasonable, usual and customary charges." ¹ Also affirmed were trial court holdings that: administrative regulations issued by the Board of Social Welfare were legally ineffective because the payment standard set forth therein cost plus allowable profit was inconsistent with the statutory standard of Kan.Stat.Ann. § 39-708(x); the nursing homes were medical assistance providers within the Kansas law; and a unilateral contract existed between the homes and SRS for payment for services to qualified patients.

The case was remanded for determination of the amounts recoverable by the nursing homes for the services provided during the period involved, May 12, 1967 to July 1, 1971. After trial, the court entered final judgment on claims of 16 of the nursing homes, separated for trial purposes, awarding different specific amounts to each home. SRS has appealed from rulings made by the trial judge in the course of those proceedings:

(1) refusing to consider offsets and counterclaims asserted by SRS for alleged overpayments made by the state agency to the individual homes for patients other than those for whom claims were filed by the nursing home;

(2) permitting the nursing homes to collect from SRS for charges not proved to be uncollectible from the patients' personal resources; and

(3) awarding of prejudgment interest of 6% On claims allowed against SRS.

I

We consider first the court's refusal to consider the setoffs and counterclaims asserted by SRS relating to alleged overcharges collected by the nursing homes on other patients. At the first pretrial conference after remand the court declared, Inter alia, its intent to consider the manner in which the claims should be "prepared, presented, and proven," and the form to be utilized. Counsel were specifically directed "to advise the Court through memorandum briefs as to any question of law which they believe the Court should consider." The order noted that SRS had assumed the position it had previously paid the reasonable, usual and customary charges and the homes were entitled to recover nothing.

A second pretrial order, among other things, announced approval of the form of claim to be used to establish "a prima facie case for the usual and customary and reasonable charges of the particular member." The form itself provided that an individual claim would be filed with respect to each patient, showing the usual and customary charges, payments and other credits. No reference was made in this order to any allegations or claims for offset, or counterclaims, or objection to the form by SRS, nor is there anything in the record submitted on appeal concerning such objections or contentions until after the fourth pretrial order.

The fourth pretrial order requires three specified nursing homes to make their records available to SRS for inspection and audit to determine the accuracy of claims which were filed by those homes, and to determine if the "usual, customary and reasonable charges" were utilized in filing the claim. The order directed that "objections, if any, . . . (by SRS) to any of the claims . . . shall likewise be reduced to writing and contained in the written report." It declared the report should be in the form of a responsive pleading or answer and present "any and all defenses of the Defendant to the claims of (the nursing home)."

It was the answer by SRS after audit which raised the questions of setoff and counterclaim for overpayments. With respect to the claim by one home the allegations were as follows:

B. $4,898.45 as to the claims of the Samaritan Home, Inc., are challenged as being properly offset by overpayments of other welfare recipients receiving services in this facility during the identical time period. The attached Counterclaim as against the Samaritan Home, Inc. is also herein adopted by reference.

C. The entire amount of the claims of the Samaritan Home, Inc. is challenged as being incorrect in that a computation of the lowest charge being paid by private recipients during each of the claimed periods results in a determination that the Samaritan Home, Inc. has already been overpaid for its services. It is alleged that the Secretary of Social and Rehabilitation Services of Kansas should not at any time pay rates to exceed that of the lowest paying private patient for similar services in that it is inappropriate for the welfare program to subsidize private paying patients, to escalate the rates of private paying patients, and to in effect award welfare benefits to private paying patients who are neither shown nor determined to be eligible for welfare benefits. The attached Counterclaim as against the Samaritan Home, Inc. is also herein adopted by reference.

D. Payment of any remaining amount of the claims of the Samaritan Home, Inc. is further challenged as being unreasonable in that such payments would cause the defendant Secretary of Social and Rehabilitation Services of Kansas to exceed its appropriation amounts which is beyond statutory duties and powers of this single, state agency.

The counterclaim is essentially a repetition:

5. That the report on results of discovery procedures as it pertains to the Samaritan Home, Inc. which is attached and which is adopted by reference as a part of these counterclaims indicates that the Samaritan Home, Inc. has already been overpaid by the amount of $4,898.45 in payments already made to other welfare recipients for the same time period as for that of the claims which were submitted by the Samaritan Home, Inc. The Samaritan Home, Inc. has further been overpaid in the amount of $39,774.91 by overpayments made by the Secretary of Social and Rehabilitation Services of Kansas and its predecessor agency for charges by the Samaritan Home, Inc. which exceeded its lowest usual and customary charges which were charged against private paying patients for similar time periods.

An examination of the exhibits indicates most of the setoff and counterclaim is based upon the SRS contention that the usual and customary charges may not exceed those made to the lowest private paying patient in the home during similar time periods. But a small portion ($4,898.45 in the quoted example) is alleged overpayment with respect to patients for whom no claim was filed by the nursing home, based upon the SRS perception of usual and customary charges with respect to claims which the home did file. Each of these patients apparently paid some part of the bills from personal funds, and it is unclear whether the nursing home charges included extra cost items such as special laundry, beauty shop expenses, medicine, or the like.

The nursing homes moved to strike all of the offset and counterclaim allegations quoted above. The actual motion is not a part of the appellate record, but the court's ruling upon the motion says:

The plaintiffs have presented a motion to strike these allegations from the separate answers filed by the State Secretary for the reason that they do not constitute defenses under the previous rulings of this Court, upheld by the Court of Appeals, and because they are outside the issues defined by the pretrial orders and rulings of the Court.

The Court finds that the motion should be sustained for the reasons asserted.

Defendant State Secretary has filed a counterclaim against some of the plaintiffs contending...