In the Matter of the Rate Appeal of Benedictine Health Center.

In the Matter of the Rate Appeal of Benedictine Health Center. A05-873, Court of Appeals Unpublished, January 31, 2006.

 This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-873

 

 

In the Matter of the Rate Appeal of

Benedictine Health Center.

 

 

Filed January 31, 2006

Affirmed

Lansing, Judge

 

Minnesota Department of Human Services

OAH Docket No. 4-1800-14518-2

 

Samuel D. Orbovich, Thomas L. Skorczeski, Orbovich & Gartner Chartered, 408 St. Peter Street, Suite 417, St. Paul, MN 55102-1187 (for relator Benedictine Health Center)

 

Mike Hatch, Attorney General, Erika S. Sullivan, Assistant Attorney General, 900 Bremer Tower, 445 Minnesota Street, St. Paul, MN  55101(for respondent Minnesota Department of Human Services)

 

            Considered and decided by Lansing, Presiding Judge; Hudson, Judge; and Dietzen, Judge.

U N P U B L I S H E D   O P I N I O N

LANSING, Judge

In this appeal from an order by the Commissioner of Human Services determining allowable costs for state medical-assistance reimbursement, Benedictine Health Center argues that the Department of Human Services impermissibly relied on an unpromulgated rule to disallow costs associated with a self-insured medical plan, that the department's interpretation of rule 50 violates equal protection guarantees by treating self-insured facilities differently from commercially insured facilities, and that the commissioner lacked jurisdiction to make cost adjustments identified in the department's appeal determination but not in its field audit.  Because the department's position is not an unpromulgated rule, self-insured facilities are not similarly situated with commercially insured facilities, and an appeal determination remains part of the record the commissioner may rely on, we affirm.

F A C T S

            Benedictine Health Center (BHC) is a long-term care facility that participates in Minnesota's Medical Assistance Program administered under Title XIX of the Social Security Act.  Through this program, the statereimbursesnursing-homefacilitiesin the form of a medical-assistance payment rate for certain allowable costs incurred to provide care to qualifying residents.  Minn. Stat. §§ 256B.41-.51 (2004); see also 42 U.S.C. § 1396 (2000) (authorizing grants to states for medical-assistance programs).  The state program is governed by "rule 50," which refers generally to Minnesota Rules 9549.0010-.0080 and the authorizing statutes, Minn. Stat. §§ 256B.41-.5.

BHC provides health insurance coverage to its employees and their families through a self-funded insurance program.  Each month BHC pays an amount fixed by Benedictine Health Systems (BHS), its parent organization, into a plan account BHS established to fund medical claims.  BHC also deposits administrative costs and reinsurance premiums for stop-loss insurance into the account.  Although BHS contracts with a third-party company to administer the account, it retains final authority on the payment of any claim.  If the amount BHC deposits for medical claims exceeds its actual claims, the surplus remains in the account.  BHS may rely on an account surplus to reduce BHC's monthly payment for the subsequent year.

            Until December 31, 1993, BHC paid monthly premiums to a commercial insurer for employee health-insurance coverage.  When BHC filed its cost reports with the Department of Human Services for the reporting years ending September 30, 1994 and 1995, it did not mark the "self-insured" box on its cost reports to indicate that it had altered its method for providing insurance.  Thedepartment'sdesk audit of BHC therefore did not evaluate whether this change required an adjustment in BHC's claimed insurance costs.  In conducting a field audit, however, the department learned that BHC had initiated a self-insurance program beginning in January 1994, and the department adjusted BHC's allowable medical-insurance costs based on the new information.  The department allowed the costs of paid medical claims and administrative costs but disallowed the costs for remaining funds, which were reserved for future medical claims.

            BHC appealed the field-audit adjustments.  The department, in its appeal determination, denied BHC's request for readjustments.  As part of its appeal-review process, the department requested additional information from BHC.  That information revealed errors in the field audit that both negatively and positively affected BHC's allowable-cost computation.  The department noted in its written determination that BHC's allowable costs should have been adjusted upward to incorporate the premiums BHC paid for stop-loss insurance, but also adjusted downward to offset employee contributions to BHC's medical-benefits plan.  The department advised BHC that, in an effort to resolve the appeal, it would not pursue the additional adjustments unless BHC requested further review. 

Following the department's affirmance of its field audit, BHCrequested a contested case hearing, and both BHC and the department moved for summary disposition in their favor.  The administrative law judge (ALJ) recommended granting the department's motion, and the Commissioner of Human Services adopted the recommendation.  The commissioner conditionally remanded to the ALJ if the department and BHC could not reach agreement on the application of the ruling to determine the precise amount of disallowed costs. 

BHC and the department were unable to agree, and the ALJ issued a recommendation denying BHC's new motion for partial summary disposition, concluding that the commissioner did not lack jurisdiction and accepting the department's calculations disallowing approximately $168,000 of claimed medical-insurance costs for the 1994 and 1995 reporting years.  The recommended adjustments credited BHC for stop-loss insurance premiums and offset the employee contributions to the medical plan.  The commissioner adopted the ALJ's recommendation.

BHC now appeals from the commissioner's final order, arguing that the department based its rate adjustments on an unpromulgated rule, or alternatively, that its application of rule 50 to self-insured facilities violates equal protection guarantees.  BHC also argues that the commissioner did not have jurisdiction to make the downward adjustment for employee contributions because the department did not include the adjustment in its field audit.

D E C I S I O N

I

A rule is an "agency statement of general applicability and future effect . . . adopted to implement or make specific the law enforced or administered by that agency."  Minn. Stat. § 14.02, subd. 4 (2004).  A rule is effective only if an agency promulgates it according to specific procedures set forth in the Minnesota Administrative Procedure Act.  Id. § 14.05, subd. 1 (2004); see also Ebenezer Soc'y v. Minn. Dep't of Human Servs., 433 N.W.2d 436, 439 (Minn. App. 1988) (invalidating agency action based on introduction of new standard without adherence to rulemaking process).  To adopt a new rule, the agency must provide public notice of the proposed rule, state the need for and reasonableness of the proposed rule, and then hold a hearing if requested by twenty-five people.  Minn. Stat. §§ 14.131, .25 (2004).  If, however, an agency's action constitutes an interpretation of a rule that is consistent with the regulations it implements, the interpretation is not a new rule subject to rulemaking procedural requirements.  Cable Commc'ns Bd. v. Nor-West Cable Commc'ns P'ship, 356 N.W.2d 658, 667 (Minn. 1984).  When an administrative rule's language is clear and capable of understanding, the interpretation of the rule is a question of law subject to de novo review.  Jasper v. Comm'r of Pub. Safety, 642 N.W.2d 435, 440 (Minn. 2002).

To receive reimbursement from the state under rule 50, a facility must file annual cost reports detailing its historical costs.  Minn. R. 9549.0041, subps. 1, 2.B (2005).  A cost is allowable for purposes of reimbursement if the cost is ordinary, necessary, and related to residential care; the cost is what a prudent business person would pay for the good or service; the cost is for goods or services actually provided; and the cost is actually incurred by the facility during the relevant reporting year.  Id. 9549.0020, subp. 25, .0035, subp. 8.A-.C (2005).

            Health insurance for employees is a fringe benefit constituting an operating cost for which a nursing facility may be reimbursed.  Id. 9549.0020, subps. 23, 32.H (2005).  The primary issue in this appeal is whether BHC actually incurred the disputed costs.  The department's position is that when a facility is self-insured, rule 50 allows reimbursement only for paid claims, administrative costs, and paid reinsurance premiums.  BHC argues that, when it pays any amount fixed by BHS into a plan account, it has incurred the cost, and that the department relies on an internal department memorandum that constitutes an unpromulgated rule, rather than a policy consistent with rule 50.

            Rule 50 defines historical operating costs as "the allowable operating costs incurred by the nursing facility during the reporting year immediately preceding the rate year for which the payment rate becomes effective."  Id. 9549.0020, subp. 25.  Rule 50 does not define "incur," but the word ordinarily means "[t]o suffer or bring on oneself" a liability or expense.  Black's Law Dictionary 782 (8th ed. 2004); see also American Heritage Dictionary 889 (4th ed. 2000) (defining incur as "[t]o become liable or subject to as a result of one's actions").

            The rule 50 calculations are framed in terms of costs actually incurred, and "incur" implies a detrimental liability to the reporting facility.  BHC's disallowed costs represent money that has not been spent and remains in its plan account, where it earns interest, is available for future use, and may result in a lower monthly payment for the following year.  BHC obtains a benefit rather than a detriment from the way in which its self-insurance program is structured.  To accept BHC's interpretation of what constitutes an allowable cost would allow a nursing facility to set aside any amount for future medical claims and assert that it has incurred the costs.  Although BHC suggests that it has incurred costs because only BHS has access to the funds paid into the plan account, the facts establish that BHC and BHS are "related organizations" as defined by Minn. R. 9549.0020, subp. 38 (2005).  "[C]osts applicable to services . . . directly or indirectly furnished to the nursing facility by any related organization are includable . . . at the cost incurred by the related organization for the provision of services."  Id. 9549.0035, subp. 7 (2005).

            The department's position is consistent with rule 50's requirements for allowable costs, and it did not improperly apply an unpromulgated rule to disallow BHC's costs.  Because the disallowance of BHC's future medical claims results from the application of rule 50's plain language, the commissioner did not err by adopting the ALJ's recommendation that disallowed the amount of BHC's deposits attributable to future medical claims that had not yet been incurred.

II

Under the principles of equal protection, laws must treat similarly situated persons the same.  U.S. Const. amend. XIV, § 1; Minn. Const. art. I, § 2; Lidberg v. Steffen, 514 N.W.2d 779, 784 (Minn. 1994).  If a law treats similarly situated persons differently and neither belongs to a suspect class, this court will uphold the law only if the disparate treatment is rationally related to a legitimate state interest.  Lidberg, 514 N.W.2d at 784; Doll v. Barnell, 693 N.W.2d 455, 461 (Minn. App. 2005), review denied (Minn. June 14, 2005).  Disparate treatment, however, is permissible when persons are not similarly situated.  See Lutheran Bhd. Research Corp. v. Comm'r of Revenue, 656 N.W.2d 375, 382 (Minn. 2003) (holding that no equal protection violation exists when persons are not similarly situated).

BHC argues that, even if the department's policy is consistent with rule 50, its interpretation violates BHC's equal protection rights by treating similarly situated facilities differently.  But BHC's argument fails because, although it shares some similar attributes with facilities that pay commercial insurers, it is not similarly situated with those facilities.

BHC and commercially insured facilities both pay monthly amounts for the purpose of covering medical claims by their employees.  Upon payment, that money is immediately unavailable to both commercially insured and self-insured facilities for use in paying other costs.  BHC's situation differs from commercially insured facilities, however, based on the future availability of those payments.  Whereas a premium paid to a third-party commercial insurer is unrecoverable without regard to actual medical claims, BHC's structure allows it to benefit to the extent its deposits exceed actual medical claims.  The difference between the actual and estimated claims remains in an interest-bearing account for future use.  Additionally, BHS, as the parent company that administers the fund, may allow the fund surpluses to be used to reduce BHC's monthly payment for subsequent years.  BHC's interpretation of the rule would permit it to claim allowable costs for all money paid into the account in one year even though some of that money remains in the account available to pay medical claims or reduce fund payments for subsequent years.

Commercially insured facilities, unlike self-insured facilities, do not retain the same carryover benefit from their paid premiums; premium payments in excess of actual medical claims do not affect future premiums or liabilities.  Commercially insured facilities are therefore not similarly situated with self-insured facilities like BHC.  Further, even if BHC could establish that it is similarly situated with commercially insured facilities because both make monthly payments to fund employee health insurance, the differences between the effect and future availability of their payments provides a rational basis for treating them differently to preserve a state interest in reimbursing facilities only for costs that are unrecoverable in any form.  The department's disallowance of costs for unincurred claims does not violate equal protection guarantees.

III

Whether an agency has jurisdiction over a matter is a legal question subject to de novo review.  Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).  The appealing party has the burden of proving that the agency lacked jurisdiction or exceeded its statutory authority.  Lolling v. Midwest Patrol, 545 N.W.2d 372, 375 (Minn. 1996); see also Minn. Stat. § 14.69(b) (2004) (stating that court may reverse if agency exceeds its statutory authority or jurisdiction).

BHC argues that the commissioner lacked jurisdiction to make adjustments the department did not include in its field audit.  In conducting its appeal determination, the department requested additional information from BHC to further evaluate its cost report.  See Minn. Stat. § 256B.50, subd. 1c(b) (2004) (allowing commissioner to request "additional written or oral information from the provider").  Based on documents supplied by BHC, the department discovered that its field audit had not included in its cost computations either employee contributions to the plan account, which would decrease allowable costs, or paid stop-loss insurance premiums, which would increase allowable costs.  The department nonetheless affirmed the field audit and informed BHC that, "[f]or purposes of resolving this appeal, the additional adjustments will not be made [but if] further review of this item is requested, then the department will pursue these additional adjustments."  BHC requested a contested case hearing, and, in the allowable costs presented in that proceeding, the commissioner readjusted the computation to include the additional adjustments.

When a facility demands a contested case hearing, the request "nullifies the written appeal determination."  Id., subd. 1c(c) (2004).  BHC contends that its request for a contested case hearing eliminated the appeal determination, leaving the department with only its field audit, which did not include the readjustments.

BHC's argument misinterprets the effect of requesting a contested case hearing.  The purpose of a contested case hearing is to have an ALJ engage in a de novo review; it is "not a mere appeal from the agency's decision."  Sleepy Eye Care Ctr. v. Comm'r Human Servs., 572 N.W.2d 766, 770 (Minn. App. 1998).  The commissioner reviews the ALJ's recommendations and makes his decision "based on the record."  Minn. Stat. § 14.62, subd. 1 (2004).  "All evidence . . . in the possession of the agency of which it desires to avail itself or which is offered into evidence by a party to a contested case proceeding, shall be made a part of the hearing record of the case."  Id. § 14.60, subd. 2 (2004).  The appeal determination outlining the readjustments was therefore part of the record in the contested case proceeding.

Other statutory provisions support the commissioner's use of information that is part of the appeal determination.  "Determination of a payment rate" is defined as "the process by which the commissioner establishes the payment rate paid to a provider . . . , including determinations made in desk audit, field audit, or pursuant to an amendment filed by the provider."  Id. § 256B.50, subd. 1a(a) (2004).  A "final rate" is defined as "the rate established after any adjustment by the commissioner, including but not limited to adjustments resulting from cost report reviews and field audits."  Id. § 256B.421, subd. 4 (2004).  The use of "including" in these provisions indicates that they are not exhaustive lists of documents and that the commissioner may determine a final payment rate based on adjustments that came to light after the field audit but before the contested case hearing.

Finally, BHC argues that the commissioner also lacked authority to correct the field report's error because the correction prejudices BHC.  An agency has the right to "reopen, rehear, and redetermine the matter even after a determination has been made."  State ex rel. Turnbladh v. Distr. Court, 259 Minn. 228, 236, 107 N.W.2d 307, 312 (1960).  An agency, however, must first give the parties notice of the correction.  Id. at 236, 107 N.W.2d at 313.  The department gave BHC written notice of the field audit's errors in July 1999.  In an effort to settle the case, the department offered to forego the readjustment.  BHC rejected that offer by requesting a contested case hearing in August 1999.  BHC knew of the field audit's errors and the potential for readjustments when it made its request.  BHC has not met its burden of showing that the corrections to its cost allowancesboth the upward and the downward readjustmentsunfairly prejudiced BHC. 

Because BHC's request for a contested case hearing nullified only the appeal determination's resolution and did not remove the appeal determination from the record, the commissioner had authority to consider the readjustments and make the corrections to the field audit contained in the appeal determination.

            Affirmed.