00-003580 Brookwood-Walton County Convalescent Center And Brookwood-Washington County Convalescent Center vs. Agency For Health Care Administration Status: Closed Recommended Order on Friday, September 21, 2001.

Summary: Petitioner entitled to interim rate increase for significant increase of liability insurance premium since reimbursement standards under state`s reimbursement plan and federal regulations are standards with which Petitioner had to comply.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BROOKWOOD-WALTON COUNTY )

CONVALESCENT CENTER AND )

BROOKWOOD-WASHINGTON COUNTY )

CONVALESCENT CENTER, )

)

Petitioners, )

)

vs. ) Case No. 00-3580

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal administrative hearing was

held before the Administrative Law Judge, Diane Cleavinger, of

the Division of Administrative Hearings on May 30, 2001, in

Tallahassee, Florida.

APPEARANCES

For Petitioner : Theodore E. Mack, Esquire

Powell & Mack

803 North Calhoun Street

Tallahassee, Florida 32303

For Respondent : Steven A. Grigas, Esquire

Agency for Health Care Administr ation

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUE

The issue in this proceeding is whether the Agency for

Health Care Administration's denial of Petitioners', Brookwood-

Walton County Convalescent Center and Brookwood-Washington

County Convalescent Center (Brookwood), interim rate request for

general and professional liability insurance was proper and in

keeping with state and federal laws and the rules and

regulations governing Florida's Medicaid program.

PRELIMINARY STATEMENT

By letter dated June 30, 2000, the Agency for Health Care

Administration (Agency or AHCA) denied Petitioner's interim rate

request for general and professional liability insurance.

Petitioner was advised that the requested change in

reimbursement did not satisfy the requirements of Section

IV.J.2. of the Florida Title XIX Long-Term Care Reimbursement

Plan since there was no requirement for a nursing home to

possess liability insurance, and no laws, rules, or standards

had changed warranting an interim rate increase. Brookwood

challenged the determination and requested an administrative

hearing.

At final hearing, Brookwood called one witness and offered

seven exhibits into evidence. AHCA called two witnesses and

offered four exhibits into evidence.

The parties filed their Proposed Recommended Orders on

August 9, 2001.

FINDINGS OF FACT

1. Petitioners, Brookwood-Washington County Convalescent

Center and Walton County Convalescent Center (Brookwood) are

licensed nursing homes in the State of Florida.

2. The Brookwood facilities have historically been high

Medicaid providers. Both participate in the Florida Medicaid

program. Washington County Convalescent Center is currently 90

percent Medicaid and Walton County Convalescent Center is 85

percent Medicaid. The statewide average for all nursing homes

in Florida is 50-55 percent Medicaid. Such high Medicaid

participation makes Brookwood extremely sensitive to changes in

its allowable costs and its ability to recover those costs.

3. Florida's Medicaid program is needs-based, providing

nursing home care to persons eligible for such care who fall

below a certain level of income and assets.

4. Medicaid is a "prospective" reimbursement program in

that reimbursement to a nursing home is based on the facility's

cost history adjusted or inflated to approximate future costs.

Adjustments are made and reimbursement rates are set based on a

nursing home's cost report for allowable costs it has incurred

in the past year.

5. In determining allowable reimbursable costs, AHCA

utilizes the Florida Title XIX Long-Term Care Reimbursement

Plan, Version XIX, dated November 27, 1995 (Reimbursement Plan),

the reimbursement principles of the Federal Medicare Program's

Health Insurance Manual (also known as the Provider

Reimbursement Manual, PRM, or HIM-15), and Generally Accepted

Accounting Principles ( GAAP ) or accepted industry practice. In

making determinations as to allowable reimbursable costs, one

first looks to the Plan, then HIM-15 and finally, GAAP.

6. With certain exceptions not relevant here, The Florida

Medicaid program reimburses all allowable costs, as those costs

are defined in the Reimbursement Plan and HIM-15. Premiums paid

by a nursing home for liability insurance are an allowable cost

under the Reimbursement Plan. Allowable costs are broken out in

the categories of property, patient care, and operating

expenses. As indicated, in determining the prospective rate,

AHCA inflates the reported allowable costs in each category

forward subject to various class ceiling limitations and target

limitations.

7. A class ceiling is an upper limit on the cost that will

be reimbursed. A target limitation is a limit on the rate of

increase of costs from year to year. In short, a nursing home

provider may be under its class ceilings; however, any increase

in its costs that exceeds a certain percentage amount will not

be recognized for reimbursement purposes.

8. After applying the inflation factor, the class ceilings

and the target limitations to allowable costs, AHCA arrives at a

per-patient, per-day rate that the nursing home will be paid

during the next year.

9. Because nursing home reimbursement is prospective and

subject to target limits, a nursing facility might be unable to

recover its allowable costs of providing services if it

experiences unanticipated expenses that cause its allowable

costs to unexpectedly rise. In such cases, the Plan has

provisions that allow, under very limited circumstances, an

interim rate adjustment for an unexpected increase in costs.

Such interim rate increases are covered in Section IV.J. of the

Plan.

10. In 1999, Brookwood's liability insurance premium cost

was $400,000 for its six Florida facilities and one North

Carolina facility. In the year 2000, Brookwood's liability

insurance premium cost increased to $4,000,000. Of that amount,

the premium cost for Walton County Convalescent Center increased

from $56,000 to $546,000 and the premium cost for Washington

County Convalescent Center increased from $84,000 to $819,000.

The premium increase occurred after Brookwood's rates had been

set based on its 1999 insurance costs. Additionally, in

September of 2000, Brookwood's liability insurer left the state.

Brookwood has since been unable to obtain liability insurance

for its Florida facilities.

11. It was possible for Brookwood to self-insure, but it

did not. Self-insurance is generally only feasible for

facilities larger than Brookwood. However, the evidence did not

demonstrate that Brookwood could not self-insure.

12. On May 30, 2000, faced with this unforeseen increase

in liability insurance premiums, Brookwood applied to AHCA for

an interim rate effective retroactively to January 1, 2000.

This was necessary because the large increase in costs would not

be covered by the normal rate of inflation allowed by the

department and the cost of the increase would not be recoverable

through the normal prospective reimbursement methodology due to

the lag time between the cost increase and the filing of the

cost report. In addition, without an interim rate Brookwood

would not receive an adjustment to its target rate, thereby,

limiting reimbursement for any increased costs it did report on

its cost reports.

13. Brookwood only requested interim ra tes for these two

facilities because its other four facilities were at or above

the cost ceilings and could get no relief from an interim rate.

In other words, for those four facilities, Medicaid will not

participate in payment for the extra costs incurred by the

increased liability insurance premiums. Even for the two

facilities at issue here, if an interim rate is granted, AHCA

will not reimburse for any costs that exceed the cost ceilings.

14. The increase of premiums and subsequent pull out by

several insurance companies were part of a reaction to increased

loss in the area of nursing home liability. The crisis was, in

part, due to an increase in civil litigation against nursing

homes being brought under Sections 400.022 and 400.023, Florida

Statutes. Indeed, Florida's rate of nursing home liability

litigation is significantly above the national average.

However, Florida's nursing home population is also significantly

larger than the national average. However, the crisis was also

due to many other factors which impact liability and rates in

Florida. While there may be some debate about the causes of the

increased litigation, there is no debate that the cost of

liability insurance increased significantly over a short period

of time with some insurance companies ceasing to write liability

insurance for nursing homes in Florida.

15. The Agency denied Brookwood's request because no new

interpretation of law by the state or federal government

pertaining to liability insurance had occurred which caused

Brookwood's costs to increase.

16. As indicated earlier, the Plan contains provisions

that allow a nursing home participating in the Medicaid program

to request an interim change in its reimbursement rate when it

incurs costs resulting from patient care or operating changes

made to comply with existing state regulations and such costs

are at least $5,000 or one percent of its per diem.

17. The language of Section IV.J.2 of the Estate's Long-

Term Care Reimbursement Plan states that:

J. The following provisions apply to

interim changes in component reimbursement

rates, other than through the routine semi-

annual rate setting process.

* * *

2. Interim rate changes reflecting

increased costs occurring as a result of

patient care or operating changes shall be

considered only if such changes were made to

comply with existing State or Federal rules,

laws, or standards, and if the change in

cost to the provider is at least $5000 and

would cause a change of 1 percent or more in

the provider's current total per diem rate.

18. Other subsections of Section J of the Reimbursement

Plan deal with new requirements or new interpretation of old

requirements. Those subsections do not apply in this case. The

term standards as used in Section J refers to standards in the

Reimbursement Plan, Section IV titled "Standards," the standards

of care and operation detailed by the Medicaid program in its

provider handbooks and such standards as are detailed in the

Code of Federal Regulations, and HCFA/HHS guidelines, as well as

state statutes and rules. These standards are the usual or

customary method or practice used by the nursing home industry

to gain reimbursement from Medicaid. The term standards include

reimbursement standards, methods or principles for medicaid

providers.

19. In essence, a nursing home would have to incur

additional or new costs to receive an interim rate adjustment.

Brookwood's increase in insurance premiums was such an increase

in costs, which would be allowable subject to ceiling and target

limitations.

20. At the time of Brookwood's request, there was no

specific requirement in the state Reimbursement Plan, state or

federal law requiring that liability insurance be carried by a

nursing home. Additionally, there was no change to the

Reimbursement Plan, state, or federal law or regulation

requiring that liability insurance be carried by a nursing home.

21. On the other hand, the reimbursement standards or

requirements set forth in HIM-15 make it clear that a prudent

Medicaid provider is expected to carry liability insurance or

self-insurance in order to be reimbursed for any uninsured

losses.

22. Specifically, Section 2160.2 of the Provider

Reimbursement Manual states:

Liability damages paid by the provider,

either imposed by law or assumed by

contract, which should reasonably have been

covered by liability insurance, are not

allowable.

Section 2161 of HIM-15 states that the reasonable costs of such

insurance are allowable. Section 2162.1 of HIM-15 states that

losses in excess of the deductible or co-insurance are allowable

costs so long as the amount of insurance was consistent with

sound management practices. Section 2162.5 of HIM-15 recognizes

the allowability of deductibles, so long as they do not exceed

10 percent of the entity's net worth or $100,000 per provider.

It also states that if you set a deductible higher than those

amounts (or assume all the risk), any losses exceeding the

10 percent or $100,000 will not be allowable as recognized

costs.

23. The general implication of these a nd other related

sections of HIM-15 is that a prudent provider is expected to

carry liability insurance or be self-insured. Thus, a provider

will be reimbursed for the reasonable costs of liability

insurance, any reasonable deductible, and any losses in excess

of reasonable insurance coverage. These limitations on loss

recovery or reimbursement are standards for purposes of

determining whether a interim rate increase is allowable. These

standards were in effect at the time Brookwood's premiums

increased. Thus, in order to comply with Medicaid's

reimbursement standards, Brookwood had to remain insured or

self-insured. The choice of which type of insurance to utilize

to meet the reimbursement standard is left to the provider.

Brookwood reasonably chose to insure through an insurance

company. Since Brookwood was required to make such a choice in

order to comply or conform to Medicaid's reimbursement

standards, Brookwood is entitled to an interim rate increase.

24. However, the interim rate provisions of the Plan only

recognize such rates submitted within 60 days prior to the date

of the interim rate request. Based on this limitation,

Petitioners' rate increase is limited to the increase in premium

incurred 60 days prior to its interim rate request around

May 30, 2000.

CONCLUSIONS OF LAW

25. The Division of Administrative Hearings has

jurisdiction over the parties to and subject matter of this

proceeding.

26. Petitioner bears the burden of showing that it is

entitled to the interim rate requested. Florida Department of

Transportation v. J.W.C. Company , 396 So. 2d 778 (Fla. 1st DCA

1981) ; Balino v. Department of Health and Rehabilitative

Services , 348 So. 2d 349 (Fla. 1st DCA 1977).

27. The Reimbursement Plan has been adopted and

incorporated by reference in Rule 59G-6.040, Florida

Administrative Code.

28. The applicable controlling rules, regulations, and

principles governing Medicaid reimbursement are set forth in the

Plan, HIM-15, and GAAP. In determining reimbursement issues,

one first looks to the Plan, then to HIM-15, and finally to

GAAP, in that order of priority.

29. An interim rate is meant to allow a provider under

very limited circumstances to be reimbursed for unanticipated

allowable costs that are not covered in their cost report.

30. Section IV.J.2. Of the Plan requires the changes

creating the increased costs to be necessary for compliance

with, "existing State or Federal rules, laws, or standards".

The requirements of HIM-15 are clearly "standards", as that term

is used in Section IV.J.2. of the Plan. In Alabama Hospital

Association v. Beasley , 702 F.2d 955 (11th Cir. 1983)

(Appendix), the Eleventh Circuit Court of Appeals discussed the

"standards" for reimbursement set forth in 42 C.F.R. HIM-15 is

a compilation and codification of 42 C.F.R., Medicare

reimbursement principles, which are utilized by Medicare. In

maintaining liability insurance for its facilities, Brookwood

was acting as a prudent provider in accordance with the

standards set forth in HIM-15. Those standards require that a

provider maintain liability or self-insurance or face the risk

of being unreimbursed for losses.

31. Because the parties agreed that Brookwood's liability

insurance premiums were allowable costs and the increase in

those costs met the threshold criteria of Section IV.J.2. of the

Plan, the fact that Brookwood incurred increased costs to comply

with recognized Medicaid reimbursement standards makes

Brookwood's request for an interim rate based on those increased

costs allowable under the Plan.

RECOMMENDATION

Based upon the foregoing findings of fact and Conclusions

of Law, it is

RECOMMENDED that

A final order be entered granting Brookwood's interim rate

request limited to the 60 days prior to the initial rate

request.

DONE AND ENTERED this 31st day of September, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

DIANE CLEAVINGER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 21st day of September, 2001.

COPIES FURNISHED :

Steven A. Grigas, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Theodore E. Mack, Esquire

Powell & Mack

803 North Calhoun Street

Tallahassee, Florida 32303

Diane Grubbs, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Julie Gallagher, General Counsel

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the final order in this case.