MILLHOUSE REHABILITATION AND HEALTH CARE CENTER v. NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

MILLHOUSE REHABILITATION AND

HEALTH CARE CENTER,

Petitioner-Appellant,

v.

NEW JERSEY DEPARTMENT OF HEALTH

AND SENIOR SERVICES,

Respondent-Respondent.

______________________________________________________

February 26, 2014

Submitted February 4, 2014 Decided

Before Judges Fisher, Koblitz and O'Connor.

On appeal from the Department of Health and Senior Services, Agency Docket No. 9378.

Buchanan Ingersoll & Rooney, PC, attorneys for appellant (Ivan J. Punchatz, of counsel; Mr. Punchatz, Brian N. Rath and Lauren Adornetto Woods, on the brief).

John J. Hoffman, Acting Attorney General, attorney for respondent (Melissa H. Raksa, Assistant Attorney General, of counsel; Michael J. Kennedy, Deputy Attorney General, on the brief).

PER CURIAM

Petitioner Millhouse Rehabilitation and Healthcare Center appeals a final decision of the Department of Health and Senior Services that denied Millhouse an adjustment in its Medicaid reimbursement rate, finding Millhouse's voluntary bed reductions were not relevant factors in the determination. Finding nothing arbitrary, capricious or unreasonable in the Department's decision, and in deference to the Department's expertise in such matters, we affirm.

Medicaid is a jointly funded state and federal program providing medical services for "indigent, disabled and elderly persons." United Hosps. Med. Ctr. v. State, 349 N.J. Super. 1, 4 (App. Div. 2002). Participant states are required to develop methodologies for the calculation of rates used to reimburse the reasonable cost of providing services to Medicaid beneficiaries. 42 U.S.C.A. 1396(b)(2). The Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, charges the Department with the "central responsibility for the development and administration of the State's policy with respect to health planning [and] hospital and related health care services[.]" N.J.S.A. 26:2H-1.

Participating facilities such as Millhouse must report to the Department and identify service costs extended to Medicaid-eligible individuals residing in their facilities. See N.J.A.C. 8:85-3.2(a). The Department, upon review of such reports, reimburses the facility's reasonable costs in providing care to Medicaid patients by setting a per diem rate. N.J.A.C. 8:85-3.1.

The methodology used to review a facility's reports and the setting of a per diem rate is referred to as the Cost Accounting and Rate Evaluation Guidelines, also referred to as "the CARE Regulations." The goal of this regulatory framework is:

(1) To comply with Federal requirements that rates are reasonable and adequate to meet the cost that efficiently and economically operated facilities must incur to provide care in conformity with applicable State and Federal laws, rules, regulations and quality and safety standards; (2) To provide rates that are sufficient for facilities to meet the needs of their Medicaid beneficiaries through a rate setting system based on the average need of individuals in their care; and (3) To control unnecessary costs, avoid duplicative cost reporting and prevent fraud and abuse.

[N.J.A.C. 8:85-3.1(f).]

The per diem Medicaid reimbursement rate is set annually for the upcoming year based upon the facility's year-end cost report. N.J.A.C. 8:85-3.2. Reimbursement is paid at a rate the Department finds to be "reasonable and adequate by efficiently and economically operated facilities." In re Medicaid Long Term Care Servs. Bulletin 85-2, 212 N.J. Super. 48, 53 (App. Div.), certif. denied, 107 N.J. 31 (1986).

The focus of this appeal is on Millhouse's voluntary reduction of licensed beds on two occasions in 2007. The record reflects that in April 2007, Millhouse applied to the Department's Office of Certificate of Need and Healthcare Facility Licensure for approval of a voluntary reduction of thirty-four beds. The application was approved and Millhouse was issued a license for 151 long-term care beds effective January 1, 2007. On September 25, 2007, the Department approved Millhouse's additional reduction of twenty beds, reducing the license to 131 beds as of October 1, 2007.

With each adjustment, Millhouse submitted a request for an adjustment, seeking to recalculate the property capital components of the reimbursement rate based upon these voluntary bed reductions. The Department denied these requests because, in addition to failing to demonstrate the bed reduction increased its operating costs, its decision to reduce "the number of beds was voluntary and not mandated by any government authority," citing N.J.A.C. 8:85-3.18. As a result, the Department issued a notice of claim, declaring that Millhouse received excess funds of $394,717.88.1

The Department's notice of claim provided Millhouse with two options it could either pay the full amount or timely request an administrative hearing. Millhouse chose the second option and additionally sought a transfer of the matter to the Office of Administrative Law. Preliminarily, the parties agreed to an approximate $30,000 reduction in the amount sought in the notice of claim, and then proceeded with the balance of the issues before Administrative Law Judge Jeff S. Masin. Both parties moved for a summary decision; following the receipt of evidence in addition to that submitted on the cross-motions, ALJ Masin rendered an initial decision in which he concluded that Millhouse's decision to reduce its bed count was not governmentally imposed and, therefore, not a factor to be considered in ascertaining the proper reimbursement rate:

the evident separation of the [certificate of need] process and the licensing functions and processes supports the position advocated by . . . the [Department] that where, as here, a licensed facility makes a voluntary decision to reduce its bed count, without a mandate to do so imposed upon it by a governmental agency, that decision is not the result of the [certificate of need] process and is not an "action . . . approved . . . in the certificate of need process" and the cost associated with it, if any, is not a subject to be considered in regard to any Medicaid rate adjustment.

[Quoting N.J.A.C. 8:85-3.18(a)(2).]

The Department's Commissioner adopted this holding, with modifications, in her final agency decision.

Millhouse appeals to this court, arguing2:

I. THE DEPARTMENT'S KNOWING REFUSAL TO ESTABLISH A MEDICAID RATE THAT WILL REASONABLY AND ADEQUATELY REIMBURSE THE FACILITY FOR COSTS INCURRED TREATING MEDICAID RESIDENTS IS ARBITRARY, CAPRICIOUS AND UNREASONABLE.

A. Federal And State Policies Require The Department To Est-ablish Reasonable And Equitable Rates.

B. The Department's Narrow Inter-pretation Of The [Certificate Of Need] Regulations Illogically Impacts The Facility In Contra-vention Of Overarching Rate Set-ting Principles.

C. The [Certificate Of Need] Pro-cess And Licensure Are Interre-lated.

D. The Department And ALJ Erron-eously Interpreted The Regula-tions.

II. THE DEPARTMENT'S KNOWING REFUSAL TO ESTABLISH RATES THAT WILL REASONABLY AND ADEQUATELY REIMBURSE THE FACILITY FOR COSTS INCURRED TREATING MEDICAID RESIDENTS VIO-LATES THE DOCTRINES OF FUNDAMENTAL FAIRNESS AND EQUITY.

A. The Appellate Division Has Pre-viously Reversed The Department's Decisions By Interpreting The Reg-ulations In An Equitable Manner.

B. The "Square Corners" Doctrine Weighs In Favor Of The Facility.

We find insufficient merit in these arguments to warrant further discussion, R. 2:11-3(e)(1)(A), and affirm substantially for the reasons set forth by the Commissioner, who largely adopted ALJ Masin's decision. We add only the following brief comments.

Appellate review of an agency decision is limited. See Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 15-16 (2006); Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963). "[C]ourts are not free to substitute their judgment as to the wisdom of a particular administrative action." N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562 (1978). Ordinarily, we will intervene only when an agency's action is arbitrary, capricious, unreasonable, or unsupported by credible evidence in the record as a whole. In re Taylor, 158 N.J. 644, 657 (1999).

In addition, although we are "in no way bound by the agency's interpretation of a statute or its determination of a strictly legal issue," Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973), we will "defer to an agency's expertise and superior knowledge of a particular field," Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992). In adhering to these principles, we recognize the Department's considerable expertise in this area and that the matter at hand required interpretation and application of the Department's own regulations. The conclusion reached by the Department is based chiefly on N.J.A.C. 8:85-3.18(a)(2),3 which declares that a facility may request the inclusion of costs resulting from "[a]ctions mandated by governmental authorities" or "approved by same in the certificate of need process." It reasonably follows from this regulation, as the Department held, that a bed reduction neither governmentally mandated nor generated by the certificate of need process is not a relevant factor when determining the proper amount of Medicaid reimbursement.

The Department's decision fell well within its area of expertise, and we are not persuaded that its decision was arbitrary, capricious or unreasonable.

1The notice of claim also asserted that interest was accruing on the overpayment in the amount of $1,671.31 per month.

2We have enumerated these arguments in a slightly different way.

3These regulations have since been amended, a fact that has no bearing on the issues presented in this appeal.