HUDSON MANOR HEALTHCARE CENTER v. NEW JERSEY DEPARTMENT OF HUMAN SERVICES DIVISION OF AGING SERVICES

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

HUDSON MANOR HEALTHCARE

CENTER,

Petitioner-Appellant,

v.

NEW JERSEY DEPARTMENT OF

HUMAN SERVICES, DIVISION

OF AGING SERVICES,

Respondent-Respondent.

_______________________________

May 21, 2014

Argued telephonically May 8, 2014 Decided

Before Judges Parrillo and Harris.

On appeal from the New Jersey Department of Human Services, Division of Aging Services.

Andrew Bayer argued the cause for appellant (GluckWalrath LLP, attorneys; Mr. Bayer and Brett Halpern, on the brief).

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

PER CURIAM

Petitioner Hudson Manor Healthcare Center (Hudson Manor), a licensed nursing facility, appeals from the September 24, 2012,

final decision of the Director of the Division of Aging Services, Department of Human Services (the Department), that obligated Hudson Manor to reimburse the Department for $758,829.02 (including interest) for excess Medicaid payments received following December 31, 2006. We affirm.

I.

The material facts that form the present appeal's contours are undisputed. Hudson Manor operates a long-term care nursing facility in Secaucus, and participates in the New Jersey Medicaid program pursuant to N.J.A.C. 8:85-1.3. The Department oversees the arcane regulatory apparatus that, among other things, makes reimbursement to cost-prudent health care providers who offer services to Medicaid-eligible individuals residing at nursing facilities. N.J.A.C. 8:85-1.1 to -5.1.

In order to calculate the per diem rates to be applied to nursing facilities each year, participating facilities submit "cost reports" to the Department after the close of the fiscal year. N.J.A.C. 8:85-3.2(a). The Department may require an audit of a nursing facility's cost report "within three years of the due date of the cost report or the date it is filed, whichever is later." N.J.A.C. 8:85-4.1(a). The audit results in the calculation of a "final per diem" rate, which "cannot exceed the prospective rates previously paid." N.J.A.C. 8:85-4.3(b). Thus, if an error is detected in the audit, a nursing facility can only owe money to the Department, and there is no provision for the recoupment of funds from the government, even if the mistake yields a balance due in favor of the facility. Once the final per diem rate is determined, the Department advises the nursing facility of the amount of overpayment, if any, plus interest due. An aggrieved nursing facility is entitled to a hearing to contest the reimbursement order. N.J.A.C. 10:49-10.3(a).

Hudson Manor was subjected to an audit that reviewed and analyzed its 2006 cost report. The audit was completed in July 2009, and revealed that, among other things, Hudson Manor had received excess payments totaling $654,781.30 because its prospective per diem rate, calculated pursuant to the 2006 cost report, was mistakenly too high. One reason for this incorrect per diem rate was Hudson Manor's understatement first detected in the audit of its number of patient days. The newly-discovered 7322 patient-days not only drove down the actual, final per diem rate, but it also concomitantly increased Hudson Manor's patient occupancy rate from 88.85 percent to 98.22 percent.

The understated patient occupancy rate embedded in the 2006 cost report also had the effect of Hudson Manor foregoing Medicaid reimbursement for so-called bedhold days.1 N.J.A.C. 8:85-1.14(a)(2). With the results of the audit now apparent, Hudson Manor retroactively attempted to capitalize on the recalculated occupancy rate of 98.22 percent and demanded credit for its unpaid 2006 bedhold days. The accounting sleight-of-hand sought to offset the amount of reimbursement Hudson Manor would have been entitled to for the unpaid bedhold days approximately $136,500 against the total excess payments that Hudson Manor received due to its inflated prospective per diem rate. The Department refused to credit Hudson Manor's unclaimed bedhold days reimbursement against the excess payments demand, thereby triggering this litigation.

Thus, the issue presented was distilled to the question of whether Hudson Manor is entitled to use the audit-adjusted patient occupancy rate to retroactively receive reimbursement for its bedhold days. After requesting a hearing and the matter being transferred to the Office of Administrative Law, Hudson Manor and the Department cross-moved for summary decision. N.J.A.C. 1:1-12.5(a). The Administrative Law Judge (ALJ) ruled that "without any statute or regulation clearly indicating an audit can increase benefits given to a [nursing facility], [the Department's] decision not to reimburse Hudson Manor for bedhold days when Hudson Manor was responsible for the incorrect cost reporting, is a reasonable and correct decision."

On review by the Department, Hudson Manor fared no better. The final agency decision determined that N.J.A.C. 8:85-4.3(b) barred reimbursement because the effect of the recoupment claim would increase Hudson Manor's prospective per diem rate for bedhold days from zero dollars to $102.42. See N.J.A.C. 8:85-1.14(a)(2) (authorizing a nursing facility to obtain bedhold days reimbursement, "not to exceed 10 days, . . . at 50 percent of the rate . . . received prior to the transfer to the hospital"). Furthermore, the final agency decision concurred with the ALJ that the agency's refusal to accede to Hudson Manor's position "was not unreasonable or without legal authority." Accordingly, the Department's motion for summary decision was granted, and Hudson Manor's cross-motion was denied. This appeal followed.

II.

Our scope of review in this appeal is well-settled and limited. "An appellate court may reverse an agency decision if it is arbitrary, capricious, or unreasonable." In re Proposed Quest Acad. Charter Sch. of Montclair Founders Grp., 216 N.J. 370, 385 (2013). "In other words, a court may intervene when 'it is clear that the agency action is inconsistent with its mandate.'" Ibid. (quoting In re Petitions for Rulemaking, N.J.A.C. 10:82-1.2 & 10:85-4.1, 117 N.J. 311, 325 (1989)). We are mandated to follow a deferential analysis, which

is generally restricted to three inquiries: (1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.

[Mazza v. Bd. of Trs., 143 N.J. 22, 25, (1995).]

Furthermore, even though 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 "'must defer to an agency's expertise and superior knowledge of a particular field.'" Dep't of Children & Families, Div. of Youth & Family Servs. v. T.B., 207 N.J. 294, 301 (2011) (quoting Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992)). "Since the reimbursement rates of health care facilities are within the peculiar competence of the agency that promulgated the rules and not the special competence of the courts, we must accord substantial deference to the administrative determinations." Bergen Pines Cnty. Hosp. v. N.J. Dep't of Human Servs., 96 N.J. 456, 478 (1984).

Lastly,

[a]n agency's interpretation of its own rule is owed considerable deference because the agency that drafted and promulgated the rule should know the meaning of that rule." Essex Cnty. Bd. of Tax. v. Twp. of Caldwell, 21 N.J. Tax 188, 197 (App. Div. 2003). However, "an agency may not use its power to interpret its own regulations as a means of amending those regulations or adopting new regulations." Venuti v. Cape May Cnty. Constr. Bd. of Appeals, 231 N.J. Super. 546, 554 (App. Div. 1989).

[In re Freshwater Wetlands Gen. Permit No. 16, 379 N.J. Super. 331, 342 (App. Div. 2005).]

The Department relies upon N.J.A.C. 8:85-4.3(b) as the bulwark against crediting Hudson Manor with bedhold days against the otherwise-uncontested recalculated prospective per diem rate. The regulation is one part of the Department's rules for audits:

(a) The Department will calculate final per diem rates based on audit adjustment reports.

(b) The final per diem rates determined based on (a) above cannot exceed the prospective rates previously paid.

(c) Settlement after final rate calculation will be for fraud and/or abuse collections or recoveries of payments when the final rate is lower than the original rate.

[N.J.A.C. 8:85-4.3 (emphasis added).]

Not only does the regulation unambiguously cap a final per diem rate, but also it makes no provision whatsoever for adjustments in a nursing facility's favor. The ostensible reason for this seemingly harsh rule is that per diem rate-setting is primarily the product of a nursing facility's self-reported cost report, and fault for mistakes inevitably lies at the feet of the facility itself. The rule highly motivates nursing facilities to accurately (and honestly) report their fiscal operations in each cost report, and when an audit detects errors (innocent or otherwise) the nursing facility bears the risk of loss, not the government. Given the strong public policy of ensuring that only cost-prudent health care providers may benefit by Medicaid reimbursement, this rule is neither unfair nor illogical.

Hudson Manor argues that a bedhold days-based reimbursement is not a species of a per diem rate, and it is, therefore, unfair and inequitable to bar recoupment, even though the mistake was its own. The Department concluded that, to the contrary, Hudson Manor's bedhold per diem rate was zero dollars, which it sought, after the fact, to increase to $102.42. We do not view this as accounting legerdemain, and treat the Department's fiscal treatment of bedhold reimbursement as a form of per diem rate allowance within the proper orbit of its administrative authority.

We observe nothing arbitrary, capricious, or unreasonable about making post-hoc fiscal adjustments a one-way street in order to prevent the possible misuse of the public fisc. Because the overarching policy is to encourage accurate reporting by nursing facilities so that governmental funds are prudently applied and conserved, Hudson Manor has no one to blame for its inability to recoup a bedhold days reimbursement but itself. The Department reasonably and accurately determined that it was proper to order Hudson Manor to reimburse the Department for $758,829.02 (including interest) for excess Medicaid payments.

Affirmed.

1 At the time Hudson Manor submitted its cost report, N.J.A.C. 8:85-1.14 required all licensed nursing facilities to reserve and hold rooms within their facilities in the event that a Medicaid beneficiary was to be transferred to a general or psychiatric hospital for a period not to exceed ten days. As a result of holding rooms for Medicaid beneficiaries (bedhold days), a licensed nursing facility was entitled to reimbursement calculated at fifty percent of the rate the nursing facility received prior to the beneficiary's transfer to the hospital. However, a nursing facility participating in the State's Medicaid program was only eligible for reimbursement for bedhold days when it reached a target patient occupancy level of ninety percent. See, e.g., L. 2007, c. 350, approved June 28, 2007, at 96 ("[P]ayments . . . shall be made . . . for bedhold days at facilities with total occupancy rates at 90% or higher based on the occupancy percentage reported on each facility's latest cost report . . . .").