SENIOR CARE CENTERS OF AMERICA, INC. v. DEPARTMENT OF HEALTH

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6280-04T56280-04T5

SENIOR CARE CENTERS OF

AMERICA, INC.,

Petitioner-Appellant,

v.

DEPARTMENT OF HEALTH

AND SENIOR SERVICES,

Respondent-Respondent.

____________________________________________________________

 

Argued June 20, 2006 - Decided July 21, 2006

Before Judges Stern and Fall.

On appeal from the final administrative

decision of the Commissioner of the

Department of Health and Senior Services,

Docket No. HLT-408-04.

Stacy L. Moore, Jr., argued the cause for

appellant (Parker McCay, attorneys; Mr. Moore,

on the brief).

Dianna Rosenheim, Deputy Attorney General,

argued the cause for respondent (Zulima V.

Farber, Attorney General, attorney; Michael J.

Haas, Assistant Attorney General, of counsel;

Ms. Rosenheim, on the brief).

PER CURIAM

Petitioner, Senior Care Centers of America, appeals from the final administrative determination of the Commissioner of the Department of Health and Senior Services ("DHSS"), which reversed the determination of an Administrative Law Judge ("ALJ") and concluded that the reimbursement rate for petitioner's adult day care program was correctly analyzed and established by respondent pursuant to N.J.A.C. 8:92-3.2(a). On this appeal, the petitioner contends that "the determination of the Administrative Law Judge implementing the clear and unambiguous terms of N.J.A.C. 8:92-3.2(a) was correct, the decision of the Commissioner rejecting that determination and imposing a strained and convoluted interpretation of the administrative code provision was arbitrary, capricious and unreasonable and the Administrative Law Judge's determination should be reinstated by this court[,]" and that "the Commissioner's decision should be reversed and the plain language of N.J.A.C. 8:92-3.2(a) should be given effect so that the legislative goals of the Alzheimer's program are properly advanced."

Pursuant to N.J.S.A. 26:2M-1 et seq., DHSS provides funding for specialized "adult day care" centers that provide for those who suffer from Alzheimer's and related diseases. See N.J.S.A. 26:2M-10(b). This case involves a dispute concerning the calculation of the per diem reimbursement rate under N.J.A.C. 8:92-3.2(a) which provides:

The agency shall submit a cost proposal, which shall itemize all costs incurred in the operation of the agency, with supportive documentation. No more than 15 percent of the total operating budget shall be allowed for administrative costs and no more than one percent of the total operating budget shall be allowed for advertising costs. The Department shall analyze the cost proposal and contrast costs with comparable facilities within their region to determine the agency's allowable cost per unit of service. The Department shall reimburse from 20 percent to 75 percent of the agency's allowable costs.

The factual background is not in dispute. Petitioner operates adult day care service centers for persons with Alzheimer's Disease and related disorders, as defined in N.J.S.A. 26:2M-10. DHSS subsidizes these programs by granting awards pursuant to N.J.S.A. 26:2M-11, and is empowered to adopt "rules and regulations necessary to implement" the legislation establishing the programs. N.J.S.A. 26:2M-15. N.J.A.C. 8:92-3.2 was adopted pursuant to this legislative authorization.

It is uncontested, in the words of the Administrative Law Judge, that "petitioner submitted a proposed Letter of Agreement for Grants to the respondent for rate determination for participation in the Program for 2003-2006 on March 28, 2003."

In the proposed agreement, petitioner stated its total program budget to be $9,722,052, of which $1,481,178 was administrative costs (Respondent's Motion, p.3, 1; Petitioner's Response, p.2, 4).

Petitioner acknowledged in its proposed agreement that its actual administrative costs exceeded the maximum allowable administrative costs (i.e., 15 percent of the total operating budget of $9,722,052) (Petitioner's Response, p. 2, 4).

Based on the above figures, petitioner calculated an expected per diem rate of $65.09. Petitioner's proposed per diem rate was calculated by dividing petitioner's total costs by petitioner's total units of service.

Respondent's analysis of the proposed agreement and submitted program budget resulted in a determination of an allowable operating budget of $8,140,839 and $1,221,126 in administrative costs. Respondent calculates the allowable administrative costs by multiplying the total allowable program budget, minus any administrative costs, by 15 percent . . . [which] result[s] in a per diem rate of $62.68. Respondent then notified petitioner of the revised per diem rate of $62.68 and the respondent's calculation of the total budget and administrative costs.

[Footnotes omitted.]

Petitioner challenged "respondent's method of calculation of administrative costs" on the basis that it "violate[ed] the plain-language interpretation of N.J.A.C. 8:92-3.2(a) and reasonable accounting and financial procedures." As such, a dispute concerning whether "actual administrative costs" were to be included as part of the "total operating budget" when applying the 15 percent limitation set forth in the regulation was presented as a contested case.

The ALJ ruled for petitioner, stating the following:

Petitioner maintains that respondent is misinterpreting the plain language of N.J.A.C. 8:92-3.2(a). Petitioner states that the plain language of the statute is clear on its face. N.J.A.C. 8:92-3.2(a) expressly and clearly provides that "[t]he agency shall submit a cost proposal, which shall itemize all costs incurred in the operation of the agency, with supportive documentation," and that "[n]o more than 15 percent of the total operating budget shall be allowed for administrative costs." Petitioner maintains that because the regulation requires the provider agency to include "all costs" incurred in the operation of its business, "all costs" necessarily must include administrative costs. Therefore, petitioner argues that its administrative costs must be included as a line item in its total operating budget.

Respondent argues that it has made a "policy determination that allowable administrative costs, under the regulations, shall be calculated by multiplying 15 percent by the total program costs excluding administrative costs. Although respondent did not address advertising costs, consistency would require respondent to also take the position that the same "policy determination" provides for allowable advertising costs, under the regulations, to be calculated by multiplying 1 percent by the "total program costs" excluding advertising costs. Additionally, although respondent does not address the categories of administrative costs and advertising costs together, consistency would seem to require respondent to take the position that its "policy determination" provides for the calculation of allowable administrative costs and allowable advertising costs by using the appropriate multiplier with the "total program costs" excluding both administrative costs and advertising costs. Indeed, it seems fairly apparent that respondent's "policy determination" is that the 15 percent limitation for administrative costs is to be applied against the programmatic or direct service costs but not the overhead costs of the agency provider. Such an interpretation is readily apparent from respondent's legal memoranda when it talks of a balancing of "the competing interests of direct service costs versus agency administrative costs." Thus, respondent really argues that its interpretation of N.J.A.C. 8:92-3.2(a) is that the term "total operating budget" really means direct service costs to the exclusion of overhead. Verification for this position can be seen in respondent's legal memoranda when it speaks of "total program costs excluding administrative costs."

. . . .

Nowhere does the regulation refer to "total program costs" or "direct service costs." The regulation rather speaks in terms of "all costs incurred in the operation of the agency" and the "total operating budget." N.J.A.C. 8:92-3.2(a). Significantly, respondent seeks to ignore altogether the language contained in the first sentence of N.J.A.C. 8:92-3.2(a). In respondent's brief (p.9, 2), respondent states that "the regulation at issue here is the first half of the second sentence of N.J.A.C. 8:92-3.2(a)." However, the first sentence of the applicable regulation cannot be ignored and that sentence refers to a cost proposal itemizing "all costs incurred in the operation of the agency." Parenthetically, respondent does concede that the regulation at issue does not define "total operating budget."

The rules applicable to statutory construction are, in general, applicable to construction of rules or regulations promulgated by an administrative agency. In re Revision in Rates Filed by Plainfield-Union Water Co., 57 N.J. Super. 158 (App. Div. 1959); State Dep't of Health v. Tegnazian, 205 N.J. Super. 160 (App. Div. 1985). Where a case requires a court to engage in statutory construction, the court's overriding goal must be to determine the Legislature's intent. Hubbard v. Reed, 168 N.J. 387, 392 (2001); Higgins v. Pascack Valley Hosp., 158 N.J. 404, 418 (1999). The analysis begins with the language of the statute. State v. Kittrell, 145 N.J. 112, 122-23 (1996). If the statute is clear, that language ordinarily governs. Neptune Bd. of Educ. v. Neptune Educ. Ass'n, 144 N.J. 16, 25 (1996). As a general rule, when the language of a statute is clear on its face, the sole function of the court is to enforce it according to its terms. Hubbard v. Reed, supra, 168 N.J. at 392. Thus, words of a statute are to be given their ordinary and well-understood meaning in the absence of any explicit indication of special meaning. Levin v. Parsippany-Troy Hills, 82 N.J. 174, 182 (1980).

[Footnote omitted.]

Accordingly, the ALJ concluded that "'all costs' necessarily includes administrative costs."

Thereafter, upon review of the ALJ's initial decision and the exceptions, the Commissioner of the Department of Health rendered the Department's final administrative determination, and reversed the ALJ in a lengthy decision. The Commissioner first noted that DHSS has a "fixed budget of $2,575,750" to distribute among the thirty-eight agencies under the Alzheimer's program; that grants are awarded through a "negotiated process" in accordance with the regulations, and are "not an entitlement" to providers; and that he has "broad discretion" in the implementation of the program, as provided by the Legislature. The Commissioner also noted that the terms "expenses of administration" and "operating expenses" are separate cost items pursuant to N.J.S.A. 26:2M-11. He concluded that "the legislative intent was [to] . . . reimburse for direct care services" and noted:

Respondent's methodology for determining allowable administrative and advertising costs is as follows: Respondent segregates administrative and advertising costs from direct service costs when analyzing a cost proposal. Following segregation of these costs, Respondent takes 15% of direct service costs to derive the allowable administrative costs for an agency. Pursuant to N.J.A.C. 8:92-3.2(a), Respondent then analyzes the cost proposal submitted by the agency and compares and contrasts the costs with comparable facilities to determine the agency's per diem rate of reimbursement. (Respondent's Certification 4-5)[.] There is nothing in the rule which prohibits this analysis when Respondent is comparing and contrasting the costs proposals of similarly situated agencies.

The Commissioner further concluded:

(1) Respondent did not attempt to rewrite, rather than interpret N.J.A.C. 8:92-3.2(a). Pursuant to N.J.A.C. 8:92-3.2(a), agencies, like the Petitioner, are required to submit cost proposals which itemize all costs incurred in the operation of an agency. Respondent considers those costs as long as administrative costs do not exceed 15% of an agency's total operating budget or advertising costs do not exceed 1% of an agency's total operating budget. The Respondent's action does not violate the express provisions of N.J.A.C. 8:92-3.2(a). The Respondent's duty under the regulation is to analyze cost proposals submitted by agencies seeking grant money from the Alzheimer's Program and to contrast the proposals with those of comparably situated agencies to derive an agency's allowable cost per unit of service;

(2) The record does not support the ALJ's findings. The ALJ's decision seems to be predicated on the notion that Respondent is obligated to accept, without further analysis, the total operating budget and related administrative and advertising costs of the agency. This is not what is required of the Respondent under the regulation. In fact, there is substantial evidence in the record that the Respondent analyzed Petitioner's costs, derived a reimbursement rate and then subsequently negotiated with Petitioner to reclassify some of Petitioner's costs to derive a revised rate of reimbursement. Respondent's actions are consistent with the scope and meaning of N.J.A.C. 8:92-3.2(a); and

For the reasons articulated in (1) and (2), when applying the legislative policies to the facts, it is impossible to conclude that Respondent clearly erred in reaching its conclusion. Respondent analyzed and compared Petitioner's cost report with other agencies and derived a reimbursement rate for Petitioner. Respondent fulfilled its statutory obligation and, in keeping with legislative intent and related history, expanded program services to Alzheimer's patients while keeping administrative expenses in check.

In essence, the Commissioner found that under N.J.A.C. 8:92-3.2(a):

the term "operating budget" shall be interpreted to mean an agency's operating budget directly allocable to the provision of services to program participants [and]

that the plain language of N.J.A.C. 8:92-3.2(a) sets forth a limitation on the percentage of administrative costs and advertising costs with reference to the total operating budget and that limitation prohibits the Petitioner from including amounts in excess of those percentages in the total operating budget that is analyzed by the Respondent in setting Petitioner's allowable cost per unit service.

Accordingly, the Commissioner reversed the ALJ's findings that administrative costs were to be included in the total operating budget, subject to the 15 percent limitation, and reversed the ALJ's finding that the per diem reimbursement rate should include the administrative and advertising costs subject to the 15 percent limitation and one percent limitation, respectively.

On this appeal we review the determination of the agency, irrespective of how reasonable or meritorious the determination of the ALJ may appear. See Adamar of N.J., Inc. v. Dep't of Law, 250 N.J. Super. 275, 295-96 (App. Div. 1991). Our review must determine only whether the regulations were consistent with the legislative authority delegated to the agency and whether the Commissioner's decision embodied a reasonable interpretation of its own regulation. See, e.g., Barone v. Dept of Human Servs., 210 N.J. Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J. 355 (1987). As our Supreme Court has recognized, "the reimbursement rates of health care facilities are within the peculiar competence of the agency that promulgated the rules," and we must therefore "accord substantial deference to the administrative determinations" and the "methodology" used by the Commissioner. Bergen Pines County Hosp. v. Dep't of Human Servs. 96 N.J. 456, 478 (1984).

Based on that limited scope of review, we find no basis for reversing the final administrative determination. We add only that the Commissioner's interpretation takes on added significance in light of the fact that the regulations require the DHSS to reimburse in some amount between "20 percent to 75 percent of the agency's allowable costs." Accordingly, if what is included in the reimbursement rate is increased, the percentage of reimbursement could be decreased.

At argument before us, the parties acknowledged that an amendment of N.J.A.C. 8:92-3.2(a) has been proposed. See 38 N.J.R. 2365(a) (June 5, 2006). The parties disagree as to whether or not this proposal would be an amendment or clarification of the rule, although petitioner acknowledges that the new interpretation would bind it prospectively. We cannot base our determination on the impact of a proposed regulation which has not yet been adopted.

 
Accordingly, the final administrative determination is affirmed.

(continued)

(continued)

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A-6280-04T5

July 21, 2006