State v. Beebe

• Decision Date: 05 December 1996
• Docket Number: No. 93-CA-00451-SCT,93-CA-00451-SCT
• Citation: 687 So.2d 702
• Parties: Medicare & Medicaid Guide P 44,932 STATE of Mississippi, Division of Medicaid in the Office of the Governor v. Elton BEEBE.
• Court: Mississippi Supreme Court

Page 702

687 So.2d 702

Medicare & Medicaid Guide P 44,932

STATE of Mississippi, Division of Medicaid in the Office of the Governor v. Elton BEEBE.

No. 93-CA-00451-SCT.

Supreme Court of Mississippi.

Dec. 5, 1996.

Rehearing Denied Feb. 20, 1997.

Michael C. Moore, Attorney General, Robert E. Sanders, Assistant Attorney General, Jackson, for Appellant.

Earl Keyes, Keyes Danks Coxwell & Leonard, Jackson, for Appellee.

Before SULLIVAN, P.J., and McRAE and MILLS, JJ.

McRAE, Justice, for the Court:

Elton Beebe brought this cause of action in the Chancery Court of the First Judicial District of Hinds County, seeking to prevent the Division of Medicaid from recapturing $738,858 in depreciation costs originally allocated to his health care facilities. Beebe maintained that the Division of Medicaid improperly interpreted the provision governing the recapture of depreciation applicable to the sale of seven of his health care facilities. Because we find that the Division of Medicaid employed the correct interpretation of the provision regulating depreciation recapture, we reverse the decision of the lower court and render judgment for the Division of Medicaid in the amount of $738,858.

I.

Elton Beebe filed a complaint on May 29, 1992 seeking a permanent injunction and declaratory judgment against the State of Mississippi, Division of Medicaid (DOM), to prevent DOM from obtaining the recapture of depreciation in the amount of $751,352 allegedly owed by Beebe after realizing a capital gain on the sale of seven nursing homes. Arguing that he owed no more than $189,914, he moved for a temporary restraining order and preliminary injunction that same day, whereupon the Chancery Court of the First Judicial District of Hinds County issued an Order granting a preliminary injunction to prevent DOM from taking any further action to collect from Beebe any amount of recapture. Beebe posted bond in the amount of $751,352 pursuant to this Order.

The Office of the Attorney General was served a copy of the Complaint and Order of Injunction, and on January 27, 1993, the day of trial, Beebe alleged by amended complaint that he was actually owed $62,030 by DOM. DOM amended its answer to claim that Beebe owed $738,858. Following trial, the court entered judgment, finding that it had jurisdiction to settle the administrative dispute, and that DOM was entitled to collect only $338,414 from Beebe. DOM filed its notice of appeal with this Court on April 14, 1993, and Beebe cross-appealed.

II.

In May of 1986, Beebe's wholly owned corporation, Mississippi Extended Care Centers (MECC), sold seven nursing homes for a profit. Because these assets actually appreciated in value, Beebe was required to reimburse the Division of Medicaid any depreciation payments made to him during his ownership of the properties. On March 31, 1987, DOM sent a notice of depreciation recapture which demanded payment from Beebe in the amount of $751,352. At that time, there were two pending lawsuits in federal court which questioned the validity of the recapture provision, Transmittal 84-36, which applied in the matter at hand. Therefore, DOM held its demand in abeyance until the recapture provision was settled by the other litigation.

On March 5, 1990, after a ruling invalidating Transmittal 84-36 in Independent Nursing Home v. Simmons, 732 F.Supp. 684 (S.D.Miss.1990), DOM recalculated and made a demand to Beebe for depreciation recapture in the amount of $1,066,398. Beebe gave this demand letter to his CPA, Harry Strohm, who recalculated the amount and determined that Beebe owed only $145,301. Beebe tendered a check to DOM for this amount on March 27, 1990. Several attempts at settlement were made, but DOM indicated that its calculations were the final decision in the matter. On April 30, 1992, after holding the $145,301 check for approximately two years, and the validity of 84-36 was upheld by the Fifth Circuit Court of Appeals, DOM responded with a demand of the original amount, $751,352. See Independent Nursing Home Ass'n v. Smith, 936 F.2d 793 (5th Cir.1991) (upholding validity of Transmittal 84-36).

Both parties conceded that the applicable provision regarding recapture of depreciation by DOM was Transmittal 84-36. The dispute in this case instead centers around the proper interpretation of this provision. It was agreed that the amount of gross recapture used by DOM was properly the lesser of the actual gain on the sale, or the accumulated depreciation after the effective date of October 1, 1984, and as a result, the parties started with the same figures for the recapture computation. Beebe, through his CPA, however, maintained that per diem rates for costs should be recalculated after the depreciation recapture was subtracted. DOM's calculations did not recalculate the per diem rates after recapture had been subtracted. DOM's figures essentially sought recapture of all depreciation originally claimed under allowable costs.

The difference in the parties' interpretations lies in where the depreciation is subtracted--as a first cost or a last cost. DOM maintains that Beebe's CPA erroneously subtracted the gross recapture amount from the total allowable cost to recompute allowable cost, which essentially considers depreciation as a last cost. Assuming that depreciation is the last cost reimbursed, the amount of recapture is reduced because of the limits placed on allowable costs. DOM maintains that any reference to overpayments includes depreciation--in other words, all depreciation is an overpayment if the seller realizes a gain upon selling the asset. Because depreciation was considered a first cost by DOM, all depreciation costs were subject to recapture. DOM did not initially try to collect the recapture from Beebe's buyer because of the other pending litigation, and then was prevented from doing so by the preliminary injunction granted in this case. Roderick Russ, a CPA with experience in the health care industry, said that the method employed by Beebe's accountant appeared to follow neither the old 84-9, or 84-36, but seemed to be a method containing different aspects of both.

Beebe's CPA stated that his interpretation lies in 9(b) of 84-36 which states, "The gross depreciation recapture will be based on the percentage of Medicaid utilization, and any resulting overpayment will be recovered." He maintained that this means that only "overpayment" can be recovered, not the entire amount of cost allocated and paid to reimburse for depreciation. Depreciation recapture is definitely "based" on the percentage of Medicaid utilization, but "overpayment" is defined elsewhere in the plan only as payments above allowable costs. At the least, Strohm maintained that the rule was ambiguous in that 84-36 does not adequately define "overpayment." He believed that his interpretation made more sense because depreciation is a noncash expense, meaning that reimbursements from DOM are first allocated to pay a facility's cash expenditures.

III.

DOM contends that the circuit court had no jurisdiction to hear this dispute because Beebe failed to exhaust the administrative remedies available to him under the Mississippi Medicaid Commission Medical Assistance Program ("Program"). A complainant must exhaust the administrative remedies available to him before resorting to the courts for resolution of his dispute. NCAA v. Gillard, 352 So.2d 1072, 1082-83 (Miss.1977); Everitt v. Lovitt, 192 So.2d 422, 426 (Miss.1966); Davis v. Barr, 250 Miss. 54, 157 So.2d 505 (Miss.1963).

Section 1-7 of the Program grants the health care provider the right to request a hearing within thirty days after receiving notice of action by DOM. It states further, "[u]nless a timely and proper request for a hearing is received by the Commission from the provider, the findings of the Commission shall be considered a final and binding administrative determination."

The record reveals that DOM first made demand for payment of $751,352 on March 31, 1987. Because of other pending litigation regarding the validity of the depreciation recapture provision, DOM suspended its attempts to try to collect the money. Beebe then offered $145,301 and tendered a check to DOM for this amount on March 27, 1990. DOM refused to accept the check and indicated that its calculations were the final decision in the matter. On April 30, 1992, upon final settlement of the other litigation, after holding the $145,301 check for approximately two years, DOM responded again with a demand of the original amount of $751,352. This demand was signed by the Director of Medicaid.

DOM fails to point out any other administrative remedies which were available to Beebe. The actions noted above already vastly exceeded the hearing remedy provided in 1-7 of the Program. The record reveals that DOM considered its demand final, and in fact, had not changed the amount demanded for five years starting on March 31, 1987. A request for a hearing would have been futile as more than thirty days had passed from its original demand. All indications by DOM and section 1-7 suggest that the April 30, 1992 demand was a "final and binding administrative determination," even though no hearing was held. Furthermore, at trial, DOM continued to assert the same position it always had taken against Beebe. Because DOM failed to point out any adequate administrative remedy available to Beebe at the time he resorted to the courts, the circuit court properly asserted jurisdiction over this dispute.

IV.

The determination of the amount of depreciation which DOM was entitled to recapture depends on which interpretation of depreciation recapture under Transmittal 84-36 this Court finds was applicable to the case at hand. Because the chancellor's interpretation of Transmittal 84-36 involved a question of law, this Court is entitled to conduct a de novo review. Planters Bank & Trust Co. v. Sklar, 555 So.2d 1024, 1028 (Miss.1990). Despite our de novo review, we are...