Sunrise Country Manor v. Nebraska Dept. of Social Services
| Decision Date | 28 October 1994 |
| Docket Number | No. S-93-118,S-93-118 |
| Citation | 246 Neb. 726,523 N.W.2d 499 |
| Court | Nebraska Supreme Court |
| Parties | , Medicare & Medicaid Guide P 42,769 SUNRISE COUNTRY MANOR, formerly known as Milford Rest Home, Appellee, v. NEBRASKA DEPARTMENT OF SOCIAL SERVICES, Appellant. |
Syllabus by the Court
1. Administrative Law: Pleadings: Appeal and Error. When a petition instituting review pursuant to the Administrative Procedure Act is filed in the district court, the review by the district court is de novo on the record.
2. Administrative Law: Judgments: Final Orders: Appeal and Error. The judgment rendered or final order made by the district court in an Administrative Procedure Act appeal may be reversed, vacated, or modified by the Supreme Court or the Court of Appeals for errors appearing on the record.
3. Administrative Law: Judgments: Appeal and Error. When reviewing a judgment for errors appearing on the record in an Administrative Procedure Act appeal, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.
4. Administrative Law: Proof. A long-term facility seeking reimbursement from the Department of Social Services pursuant to state medicaid regulations has the burden to prove its entitlement thereto.
5. Administrative Law: Proof: Appeal and Error. An incorrect statement of the burden of proof is not reversible error per se, if a district court's decision in an Administrative Procedure Act appeal otherwise conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.
6. Administrative Law: Judicial Notice: Proof: Appeal and Error. Generally, the appellate courts of this state will not take judicial notice of administrative rules or regulations. It is incumbent upon the party relying on an administrative rule or regulation to prove both its existence and its language.
7. Appeal and Error. Cases are heard in the state appellate courts on the theory upon which they were tried.
8. Administrative Law: Appeal and Error. Ordinarily, deference is accorded to an agency's interpretation of its own regulations unless plainly erroneous or inconsistent.
9. Administrative Law. Agency regulations, properly adopted and filed with the Secretary of State of Nebraska, have the effect of statutory law.
10. Administrative Law: Statutes: Appeal and Error. The meaning of a statute is a question of law, and a reviewing court is obligated to reach its conclusions independent of the determination made by the administrative agency.
Don Stenberg, Atty. Gen., and Royce N. Harper, Lincoln, for appellant.
Robert L. Lepp and Mark A. Pieper, of McGill, Gotsdiner, Workman & Lepp, P.C., Omaha, for appellee.
The Nebraska Department of Social Services (Department) appeals a decision of the district court reversing an order of the Department's director which disallowed an interest expense claimed by Sunrise Country Manor (Sunrise), a nursing home facility.
We reverse the order of the district court for Lancaster County and remand the cause with direction to reinstate the director's order.
The Department, as an administrative agency of the State of Nebraska, has appealed pursuant to the Administrative Procedure Act (APA), Neb.Rev.Stat. § 84-901 et seq. (Reissue 1987 & Cum.Supp.1992).
When a petition instituting review pursuant to the APA is filed in the district court, the review by the district court is de novo on the record. § 84-917(5)(a); Crawford v. Department of Motor Vehicles, 246 Neb. 319, 518 N.W.2d 148 (1994).
The judgment rendered or final order made by the district court in an APA appeal may be reversed, vacated, or modified by the Supreme Court or the Court of Appeals for errors appearing on the record. § 84-918(3); James v. Harvey, 246 Neb. 329, 518 N.W.2d 150 (1994); Crawford v. Department of Motor Vehicles, supra. When reviewing a judgment for errors appearing on the record in an APA appeal, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Crawford v. Department of Motor Vehicles, supra.
Review of this case is hampered because many of the parties' citations to the record in their briefs are insufficient to verify the facts as stated, and to that extent the briefs do not comply with our rules. See Neb.Ct.R. of Prac. 9 D(1)f (rev. 1992) ( that "every recitation of fact ... shall be annotated to the record...."). Furthermore, the parties presented little or no testimony at the hearing as to many of the exhibits entered into evidence, even though a number of those exhibits were accounting and auditing records which were at least somewhat technical in nature. As best we can determine from the record before us, the facts of this case are as follows:
Sunrise, formerly known as Milford Rest Home, is a 72-bed nursing home facility located in Milford. The facility serves many older and "heavier care" patients, including a very high "mix" of medicaid patients, and has entered into a "Medical Assistance Long Term Care Provider Agreement" with the Department.
As a provider of medicare long-term care services, Sunrise is entitled to apply for reimbursement of certain expenses. See 471 Neb.Admin.Code, ch. 12, § 011. To receive such reimbursement, Sunrise is required to submit its costs by filing a periodic report to the Department. See 471 Neb.Admin.Code, ch. 12, § 011.09. It is certain changes in the reimbursement regulations which have given rise to this case.
Until June or July 1983, Meriel M. Stauffer was president of Sunrise and owned 90 percent of the stock. Her son, Lemar Tim Stauffer, also known as Tim Stauffer, owned the remaining 10 percent of the stock. Previous to 1983, Sunrise had been reimbursed by medicaid for return on equity to Meriel Stauffer. However, the January 1, 1984, revision of the regulations eliminated return on equity paid to stockholders or partners as a reimbursable cost. See 471 Neb.Admin.Code, ch. 12, § 011.05 (rev. Jan. 1, 1984).
In June or July 1983, Tim Stauffer purchased the nursing home facility from his mother. At the same time, Milford Rest Home and Meriel Stauffer, personally, borrowed $100,000 from Farmers and Merchants Bank (Bank), as evidenced by a demand note in that amount dated June 10, 1983. The purpose of the loan was stated on the face of the note to be "[p]ayment of Milford REst [sic] Home, Inc. [,] indebtedness to Meriel M. Stauffer." The note was signed by Meriel Stauffer in her personal capacity, and on behalf of Milford Rest Home by Meriel Stauffer as president and Tim Stauffer as secretary-treasurer.
The note was secured by a deed of trust on certain real estate, executed by Meriel Stauffer in her personal capacity, and by a $35,000 certificate of deposit. A loan guarantee agreement in favor of the Bank is also in the record. That document contains the typewritten names of Meriel Stauffer, Tim Stauffer and one Connie Lou Stauffer. However, there are no signatures on the document.
After a routine audit of Sunrise's claimed expenses for the reporting period ending June 30, 1987, the Department disallowed Sunrise reimbursement for interest on the loan from the Bank. The auditor made the following note in his workpapers:
[Tim Stauffer] informed this auditor that the $100,000 was basically invested capital due his mother that had been retained in the business. Since the intent in establishing the note payable to Meriel was to record the invested funds due her, the interest cost from the Farmers and Merchants Bank is disallowed. Per HIM 15 218.1, interest cost paid by the facility to a stockholder is not an allowable cost. Since the Farmers and Merchants Bank loan merely replaces the original note, the interest cost is not allowed.
An auditor for the Department testified at the hearing that because the adjustment was material, i.e., it had more than a $1,000 medicaid impact, the Department opened up and audited the reports for 1984-86. Through a series of field audits for the periods ending June 30, 1984, through June 30, 1987, and desk audits for the periods ending June 30, 1988, through June 30, 1990, the Department ultimately made adjustments to Sunrise's long-term care cost reports for the years 1984-90. Sunrise's interest expense on the loan from the Bank was denied for each of those years, and the Department also made other adjustments which are not before the court at this time.
Sunrise appealed the adjustment of interest expense, as well as other adjustments, and after a hearing, the director of the Department affirmed the adjustments. Sunrise appealed to the district court, which held that some of the director's adjustments were proper, but reversed the director's decision regarding the interest expense.
The Department timely appealed to the Nebraska Court of Appeals, contesting the part of the district court's order permitting reimbursement for the interest expense. Sunrise filed no cross-appeal. The case was removed from the Court of Appeals to this court pursuant to our authority to regulate the caseloads of the appellate courts of this state.
The Department contends that the district court erred in (1) placing the burden of proof for reimbursement on the Department; (2) finding that the original loan, i.e., Meriel Stauffer's equity interest, was necessary and proper, which finding was contrary to the law and regulations governing provider reimbursement and contrary to the evidence; and (3) failing to give due deference to the Department's interpretation of its rules and regulations and to the expertise of the agency director.
The district court, in its order, stated that "[t]here was no evidence presented which established that the original loan...
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