Service Management, Inc. v. State Health and Human Services Finance Com'n

• Decision Date: 14 February 1989
• Docket Number: No. 1309,1309
• Citation: 379 S.E.2d 442,298 S.C. 234
• Court: South Carolina Court of Appeals
• Parties: , Medicare & Medicaid Guide P 37,963 SERVICE MANAGEMENT, INC., d/b/a Berkeley Convalescent Center, Appellant, v. STATE HEALTH AND HUMAN SERVICES FINANCE COMMISSION as Successor in Interest to the South Carolina Department of Social Services, ... Respondent. . Heard

Page 442

379 S.E.2d 442

298 S.C. 234, Medicare & Medicaid Guide P 37,963

SERVICE MANAGEMENT, INC., d/b/a Berkeley Convalescent Center, Appellant, v. STATE HEALTH AND HUMAN SERVICES FINANCE COMMISSION as Successor in Interest to the South Carolina Department of Social Services, ... Respondent.

No. 1309.

Court of Appeals of South Carolina.

Heard Feb. 14, 1989.

Decided March 27, 1989.

David M. Rogers of Carter, Smith, Merriam, Rogers & Traxler, Greer, for appellant.

W. Allen Nickles, III of Gergel, Burnette, Nickles, Grant & Ouzts, Columbia, for respondent.

CURETON, Judge:

This case concerns recovery of alleged overpayments of Medicaid funds. Service Management Inc. d/b/a Berkeley Convalescent Center (Berkeley) is a nursing home in Moncks Corner, South Carolina. The dispute relates to the appropriate reimbursement rate to be paid Berkeley for cost of capital expenses. The State Health and Human Services Finance Commission (State) contends the reimbursement rate is limited to $7.79 per patient day effective from the date Berkeley began its operation. Berkeley contends it is entitled to reimbursement at the rate of $9.36 per patient day for the period September 9, 1981, through January 31, 1982, and $8.78 for the contract periods beginning February 1, 1982. The circuit court affirmed the final administrative decision holding Berkeley was entitled to reimbursement at the rate of $7.79 per patient day. Berkeley appeals the decision of the circuit court. We affirm.

Berkeley began providing services under the South Carolina Medicaid Program on September 9, 1981. On that date Berkeley entered into a written contract with the State concerning reimbursement. The document was a standard form contract prepared by the State. The contract contained a provision relating to cost of capital. The provision stated "the maximum payment amount shall be an allowable cost up to seven dollars seventy-nine cents ($7.79) per patient day." This figure had been adjusted for the rate cycle beginning January 1, 1981. However, Computation of Rate Sheets prepared by State employees and attached to the Berkeley contract resulted in cost of capital payments to Berkeley of $9.36 per patient day for the period September 9, 1981, through January 31, 1982, and $8.78 for the period beginning February 1, 1982. These figures were derived by adding an inflation factor based upon the Consumer Price Index to the $7.79 maximum payment in the standard contract. Ralph Wessinger, the State employee who supervised the rate setting, testified at the administrative hearing he followed an existing practice in the agency by inflating the cost of capital rate to the beginning of the "rate cycle" for the new facility. In this case the rate cycle for Berkeley was determined to be its start-up date in September of 1981. The Deputy State Auditor testified there was no provision in the contract or the State Plan under Title XIX of the Social Security Act for inflating the cost of capital rate based upon a rate cycle beginning on the date a new facility opened. In other words, the State's position is the "rate cycle" was a generic term designating a calendar year beginning January 1, 1981, and not an individualized time frame for each facility. After an audit, the State sought recovery of the alleged overpayments.

The basic thrust of Berkeley's argument is the rate computation was made by State employees and Berkeley had a right to rely on it; therefore, the State is bound by the computation. H. Thomas Taylor, president of Berkeley, was aware the computed rate was greater than the $7.79 per patient day stated in the contract. He had been in business for several years and was generally familiar with the reimbursement process. He referred in his testimony to the practice of the agency inflating the cost of capital rate. The testimony is not clear under what authority this practice originated but it was apparently followed for at least eighteen months before Berkeley began operation. The record does not disclose approval of the practice by the Board of the Department of Social Services. The Department of Social Services (DSS) was the predecessor in interest to the Health and Human Services Finance Commission and was the state agency involved at the time these matters arose.

The contract between Berkeley and the State provides Berkeley will be paid for services rendered to Medicaid patients pursuant to a per diem rate specified in Appendix A of the contract. Appendix A states the methodology to be used in determining the per diem rate....