07-003626 Avante At Jacksonville vs. Agency For Health Care Administration Status: Closed Recommended Order on Thursday, September 18, 2008.

Summary: Petitioner failed to demonstrate that its interim rate request (IRR) for an increase met the requirements of the Long-Term Care Reimbursement Plan. Recommend that IRR be denied.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ADVANTE AT JACKSONVILLE, )

)

Petitioner, )

)

vs. ) Case Nos. 07-3626

) 07-5155

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

________________________________)

ADVANTE AT ST. CLOUD, 1 )

)

Petitioner, )

)

vs. ) Case No. 08-0220

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case

on February 19, 2008, in Tallahassee, Florida, before Errol H.

Powell, a designated Administrative Law Judge of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Peter A. Lewis, Esquire

Goldsmith, Grout & Lewis, P.A.

307 West Park Avenue, Suite 200

Tallahassee, Florida 32302

For Respondent: Karen Dexter, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue for determination is whether Petitioners’ Interim

Rate Request (IRR) for an increase should be granted.

PRELIMINARY STATEMENT

By letter dated July 16, 2007, Petitioner Avante at

Jacksonville requested an IRR effective August 1, 2007, pursuant

to Florida Title XIX Long-term Care Reimbursement Plan (Plan)

Section IV J.2., for additional costs incurred from self-insured

losses as a result of paying $350,000.00 to settle a lawsuit

involving the Estate of D. P. By letter dated July 18, 2007,

the Agency for Health Care Administration (AHCA) denied the IRR

on the basis that the IRR failed to satisfy the requirements of

“Section IV J.” Petitioner Avante at Jacksonville contested the

denial and timely requested a hearing. On August 10, 2007, this

matter was referred to the Division of Administrative Hearings.

A hearing was scheduled for November 8, 2007, on agreement of

the parties. The hearing was continued and re-scheduled on

agreement of the parties for December 10, 2007.

By letter dated October 22, 2007, Petitioner Avante at

Jacksonville made a second request for an IRR, this time

pursuant to the Plan Section IV J.3., for the additional costs

incurred from the self-insured losses as a result of paying the

$350,000.00 settlement. By letter dated October 30, 2007, AHCA

denied the second request for an IRR, indicating that the first

request was denied based on “all sub-sections of Section IV J of

the Plan”; that the second request failed to satisfy the

requirements of the Plan Section IV J.3. and all sections and

sub-sections of the Plan “necessary and proper for granting

[the] request.” Petitioner Avante at Jacksonville contested the

denial and timely requested a hearing. On November 9, 2007,

this matter was referred to the Division of Administrative

Hearings. By Order dated November 26, 2007, consolidation was

granted and the two matters (Case Nos. 07-3626 and 07-5155) were

consolidated. The parties filed a joint motion for continuance,

which was granted, and by Order dated December 24, 2007, these

matters were re-scheduled for hearing on February 19, 2008.

By letter dated December 10, 2007, Petitioner Avante at St.

Cloud requested an IRR effective November 1, 2007, pursuant to

the Plan Section IV J for additional costs associated with

claims paid to the Estate of G. M. in the amount of $90,000.00.

By letter dated December 12, 2007, AHCA denied the IRR on the

basis that the IRR failed to satisfy the requirements of

“Section IV J of the Plan necessary and proper for granting

[the] request.” Petitioner Avante at St. Cloud contested the

denial and timely requested a hearing. On January 11, 2008,

this matter was referred to the Division of Administrative

Hearings. Petitioner Avante at St. Cloud filed a motion for

continuance, which was granted, and by Order dated February 4,

2008, these matters (Case Nos. 07-3626, 07-5155, and 08-0220)

were consolidated for the hearing scheduled on February 19,

2008.

At hearing, the parties filed a Joint Pre-Trial Stipulation

regarding issues of law on which the parties agreed. Those

issues of law included the following:

Florida Title XIX Long-Term Care

Reimbursement Plan, Version XXX, effective

date July 1, 2006, has been adopted and

incorporated by reference in Rule 59G-6.010,

Florida Administrative Code.

Florida Title XIX Long-Term Care

Reimbursement Plan, Version XXXI, effective

date August 26, 2007, has been adopted and

incorporated by reference in Rule 59G-6.010,

Florida Administrative Code.

Florida Title XIX Long-Term Care

Reimbursement Plan, Versions XXX and XXXI,

incorporates by reference The Provider

Reimbursement Manual (CMS Pub. 15-1).

Provision 4.J.1. of the Long Term Care

Reimbursement Plan is not at issue in this

case and does not apply to the facts of this

case.

Also, at hearing, the parties agreed that Version XXXI of the

Plan is applicable to this matter.

Further, at hearing, Petitioners presented the testimony of

three witnesses and entered 12 exhibits (Petitioners’ Exhibits

numbered 1 through 12) into evidence. AHCA presented the

testimony of one witness and entered two exhibits (Respondent's

Exhibits numbered 2 and 3) into evidence. The parties entered

two joint exhibits (Joint Exhibits numbered 1 and 2) into

evidence. 2 Official Recognition was taken of Brookwood-Walton

County Convalescent Center v. AHCA , 845 So. 2d 223 (Fla. 1st DCA

2003).

A transcript of the hearing was ordered. At the request of

the parties, the time for filing post-hearing submissions was

set for more than ten days following the filing of the

transcript. The Transcript, consisting of one volume, was filed

on March 5, 2008. Respondent requested an extension of time for

the parties to file post-hearing submissions, and the request

was granted. The parties timely filed their post-hearing

submissions, which were considered in the preparation of this

Recommended Order.

FINDINGS OF FACT

1. AHCA is the agency of state government responsible for

the implementation and administration of the Medicaid Program in

the State of Florida.

2. AHCA is authorized to audit Medicaid Cost Reports

submitted by Medicaid Providers participating in the Medicaid

Program.

3. Avante at Jacksonville and Avante at St. Cloud are

licensed nursing homes in Florida that participate in the

Medicaid Program as institutional Medicaid Providers.

4. On May 23, 2007, Avante at Jacksonville entered into a

settlement agreement with the representative of the estate of

one of its former residents, D. P. The settlement agreement

provided, among other things, that Avante at Jacksonville would

pay $350,000.00 as settlement for all claims. Avante at

Jacksonville paid the personal representative the sum of

$350,000.00.

5. By letter dated July 16, 2007, Avante at Jacksonville

requested an IRR effective August 1, 2007, pursuant to the Plan

Section IV J.2., for additional costs incurred from self-insured

losses as a result of paying the $350,000.00 to settle the

lawsuit. Avante at Jacksonville submitted supporting

documentation, including a copy of the settlement agreement, and

indicated, among other things, that the costs exceeded $5,000.00

and that the increase in cost was projected at $2.77/day,

exceeding one percent of the current Medicaid per diem rate.

6. At all times pertinent hereto, the policy held by

Avante at Jacksonville was a commercial general and professional

liability insurance policy. The policy had $10,000.00 per

occurrence and $50,627.00 general aggregate liability limits.

7. The policy was a typical insurance policy

representative of what other facilities in the nursing home

industry purchased in Florida.

8. The policy limits were typical limits in the nursing

home industry in Florida.

9. By letter dated July 18, 2007, AHCA denied the IRR on

the basis that the IRR failed to satisfy the requirements of

Section IV J. of the Plan, necessary and proper for granting the

request. Avante at Jacksonville contested the denial and timely

requested a hearing.

10. Subsequently, Avante at Jacksonville became concerned

that, perhaps, the incorrect provision of the Plan had been

cited in its IRR. As a result, a second IRR was submitted for

the same costs.

11. By letter dated October 22, 2007, Avante at

Jacksonville made a second request for an IRR, this time

pursuant to the Plan Section IV J.3., for the same additional

costs incurred from the self-insured losses as a result of

paying the $350,000.00 settlement. The same supporting

documentation was included. Avante at Jacksonville was of the

opinion that the Plan Section IV J.3. specifically dealt with

the costs of general and professional liability insurance.

12. By letter dated October 30, 2007, AHCA denied the

second request for an IRR, indicating that the first request was

denied based on “all sub-sections of Section IV J of the Plan”;

that the second request failed to satisfy the requirements of

the Plan Section IV J.3. and all sections and sub-sections of

the Plan “necessary and proper for granting [the] request.”

13. Avante at Jacksonville contested the denial and timely

requested a hearing.

14. On October 19, 2007, Avante at St. Cloud entered a

settlement agreement with the personal representative of the

estate of one of its former residents, G. M. The settlement

agreement provided, among other things, that Avante at St. Cloud

would pay $90,000.00 as settlement for all claims. Avante at

St. Cloud paid the personal representative the sum of

$90,000.00.

15. By letter dated December 10, 2007, Avante at St. Cloud

requested an IRR effective November 1, 2007, pursuant to the

Plan Section IV J, for additional costs incurred as a result of

paying the $90,000.00 to settle the lawsuit. Avante at St.

Cloud submitted supporting documentation, including a copy of

the settlement agreement, and indicated, among other things,

that the increase in cost was projected at $2.02/day, exceeding

one percent of the current Medicaid per diem rate.

16. At all times pertinent hereto, the policy held by

Avante at St. Cloud was a commercial general and professional

liability insurance policy. The policy had $10,000.00 per

occurrence and $50,000.00 general aggregate liability limits.

17. The policy was a typical insurance policy

representative of what other facilities in the nursing home

industry purchased in Florida.

18. The policy limits were typical limits in the nursing

home industry in Florida.

19. By letter dated December 12, 2007, AHCA denied the IRR

on the basis that the IRR failed to satisfy the requirements of

“Section IV J of the Plan necessary and proper for granting

[the] request.”

20. Avante at St. Cloud contested the denial and timely

requested a hearing.

Insurance Policies and the Nursing Home Industry in Florida

21. Typically, nursing homes in Florida carry low limit

general and professional liability insurance policies.

22. The premiums of the policies exceed the policy limits.

For example, the premium for a policy of Avante at Jacksonville

to cover the $350,000.00 settlement would have been

approximately $425,000.00 and for a policy of Avante at St.

Cloud to cover the $90,000.00 settlement would have been

approximately $200,000.00.

23. Also, the policies have a funded reserve feature

wherein, if the reserve is depleted through the payment of a

claim, the nursing home is required to recapitalize the reserve

or purchase a new policy. That is, if a policy paid a

settlement up to the policy limits, the nursing home would have

to recapitalize the policy for the amount of the claim paid

under the policy and would have to fund the loss, which is the

amount in excess of the policy limits, out-of-pocket.

Florida’s Medicaid Reimbursement Plan for Nursing Homes

24. The applicable version of the Plan is Version XXXI.

25. AHCA has incorporated the Plan in Florida

Administrative Code Rule 59G-6.010.

26. AHCA uses the Plan in conjunction with the Provider

Reimbursement Manual (CMS-PUB.15-1) 3 to calculate reimbursement

rates of nursing homes and long-term care facilities.

27. The calculation of reimbursement rates uses a cost-

based, prospective methodology, using the prior year’s costs to

establish the current period per diem rates. Inflation factors,

target ceilings, and limitations are applied to reach a per

patient, per day per diem rate that is specific to each nursing

home.

28. Reimbursement rates for nursing homes and long-term

care facilities are typically set semi-annually, effective on

January 1 and July 1 of each year.

29. The most recent Medicaid cost report is used to

calculate a facility’s reimbursement rate and consists of

various components, including operating costs, the direct

patient care costs, the indirect patient care costs, and

property costs.

30. The Plan allows for the immediate inclusion of costs

in the per diem rate to Medicaid Providers under very limited

circumstances through the IRR process. The interim rate’s

purpose is to compensate for the shortfalls of a prospective

reimbursement system and to allow a Medicaid Provider to

increase its rate for sudden, unforeseen, dramatic costs beyond

the Provider’s control that are of an on-going nature.

Importantly, the interim rate change adjusts the Medicaid

Provider’s individual target rate ceiling to allow those costs

to flow ultimately through to the per diem paid, which increases

the amount of the Provider’s overall reimbursement.

31. In order for a cost to qualify under an interim rate

request, the cost must be an allowable cost and meet the

criteria of Section IV J of the Plan.

32. The Plan provides in pertinent part:

IV. Standards

* * *

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 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.

a. If new State or Federal laws, rules,

regulations, licensure and certification

requirements, or new interpretations of

existing laws, rules, regulations, or

licensure and certification requirements

require providers to make changes that

result in increased or decreased patient

care, operating, or capital costs, requests

for component interim rates shall be

considered for each provider based on the

budget submitted by the provider. All

providers’ budgets submitted shall be

reviewed by the Agency [AHCA] and shall be

the basis for establishing reasonable cost

parameters.

b. In cases where new State or Federal

requirements are imposed that affect all

providers, appropriate adjustments shall be

made to the class ceilings to account for

changes in costs caused by the new

requirements effective as of the date of the

new requirements or implementation of the

new requirements, whichever is later.

3. Interim rate adjustments shall be

granted to reflect increases in the cost of

general or professional liability insurance

for nursing homes if the change in cost to

the provider is at least $5000 and would

cause change of 1 percent or more in the

provider’s current total per diem.

33. CMS-PUB.15-1 provides in pertinent part:

2160. Losses Arising From Other Than Sale

of Assets

A. General .—A provider participating in the

Medicare program is expected to follow sound

and prudent management practices, including

the maintenance of an adequate insurance

program to protect itself against likely

losses, particularly losses so great that

the provider’s financial stability would be

threatened. Where a provider chooses not to

maintain adequate insurance protection

against such losses, through the purchase of

insurance, the maintenance of a self-

insurance program described in §2161B, or

other alternative programs described in

§2162, it cannot expect the Medicare program

to indemnify it for its failure to do so.

Where a provider chooses not to file a claim

for losses covered by insurance, the costs

incurred by the provider as a result of such

losses may not be included in allowable

costs.

* * *

2160.2 Liability Losses .—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. Insurance

against a provider’s liability for such

payments to others would include, for

example, automobile liability insurance;

professional liability (malpractice,

negligence, etc.); owners, landlord and

tenants liability; and workers’

compensation. Any settlement negotiated by

the provider or award resulting from a court

or jury decision of damages paid by the

provider in excess of the limits of the

provider’s policy, as well as the reasonable

cost of any legal assistance connected with

the settlement or award are includable in

allowable costs, provided the provider

submits evidence to the satisfaction of the

intermediary that the insurance coverage

carried by the provider at the time of the

loss reflected the decision of prudent

management. Also, the reasonable cost of

insurance protection, as well as any losses

incurred because of the application of the

customary deductible feature of the policy,

are includable in allowable costs.

34. As to whether a cost is allowable, the authority to

which AHCA would look is first to the Plan, then to CMS-PUB.15-

1, and then to generally accepted accounting principles (GAAP).

35. As to reimbursement issues, AHCA would look to the

same sources in the same order for the answer.

36. The insurance liability limit levels maintained by

Avante at Jacksonville and Avante at St. Cloud reflect sound and

prudent management practices.

37. Claims that resulted in the settlements of Avante at

Jacksonville and Avante at St. Cloud, i.e., wrongful death

and/or negligence, are the type of claims covered under the

general and professional liability policies carried by Avante at

Jacksonville and Avante at St. Cloud.

38. Avante at Jacksonville and Avante at St. Cloud both

had a general and professional liability insurance policy in

full force and effect at the time the wrongful death and/or

negligence claims were made that resulted in the settlement

agreements.

39. Neither Avante at Jacksonville nor Avante at St. Cloud

filed a claim with their insurance carrier, even though they

could have, for the liability losses incurred as a result of the

settlements. Avante at Jacksonville and Avante at St. Cloud

both chose not to file a claim with their respective insurance

carrier for the liability losses incurred as a result of the

settlements.

40. AHCA did not look beyond the Plan in making its

determination that neither Avante at Jacksonville nor Avante at

St. Cloud should be granted an IRR.

41. Wesley Hagler, AHCA’s Regulatory Analyst Supervisor,

testified as an expert in Medicaid cost reimbursement. He

testified that settlement agreements are a one time cost and are

not considered on-going operating costs for purposes of Section

IV J.2. of the Plan. Mr. Hagler’s testimony is found to be

credible.

42. Mr. Hagler testified that settlement agreements and

defense costs are not considered general and professional

liability insurance for purposes of Section IV J.3. of the Plan.

To the contrary, Stanley William Swindling, Jr., an expert in

health care accounting and Medicare and Medicaid reimbursement,

testified that general and professional liability insurance

costs include premiums, settlements, losses, co-insurance,

deductibles, and defense costs. Mr. Swindling’s testimony is

found to be more credible than Mr. Hagler’s testimony, and,

therefore, a finding of fact is made that general and

professional liability insurance costs include premiums,

settlements, losses, co-insurance, deductibles, and defense

costs. 4

43. Neither Avante at Jacksonville nor Avante at St. Cloud

submitted any documentation with their IRRs to indicate a

specific law, statute, or rule, either state or federal, with

which they were required to comply, resulted in an increase in

costs.

44. Neither Avante at Jacksonville nor Avante at St. Cloud

experienced an increase in the premiums for the general and

professional liability insurance policies.

45. Neither Avante at Jacksonville nor Avante at St. Cloud

submitted documentation with its IRRs to indicate that the

premiums of its general and professional liability insurance

increased.

46. Avante at Jacksonville and Avante at St. Cloud could

only meet the $5,000.00 threshold and the one percent increase

in total per diem under the Plan, Sections IV J.2. or J.3. by

basing its calculations on the settlement costs.

47. Looking to the Plan in conjunction with CMS-PUB.15-1

to determine reimbursement costs, CMS-PUB.15-1 at Section 2160A

provides generally that, when a provider chooses not to file a

claim for losses covered by insurance, the costs incurred by the

provider, as a result of such losses, are not allowable costs;

however, Section 2160.2 specifically includes settlement dollars

in excess of the limits of the policy as allowable costs,

provided the evidence submitted by the provider to the

intermediary (AHCA) shows to the satisfaction of the

intermediary that the insurance coverage at the time of the loss

reflected the decision of prudent management.

48. The policy coverage for Avante at Jacksonville and

Avante at St. Cloud set the policy limits for each facility at

$10,000.00 for each occurrence. Applying the specific section

addressing settlement negotiations, the loss covered by

insurance would have been $10,000.00 for each facility and the

losses in excess of the policy limits--$340,000.00 for Avante at

Jacksonville and $80,000.00 for Avante at St. Cloud—would have

been allowable costs.

CONCLUSIONS OF LAW

49. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and the

parties thereto pursuant to Sections 120.569 and 120.57(1),

Florida Statutes (2008).

50. The standard of proof is the preponderance of

evidence. § 120.57(1)(l), Fla. Stat. (2007).

51. The general rule is that "the burden of proof, apart

from statute, is on the party asserting the affirmative of an

issue before an administrative tribunal." Florida Department of

Transportation v. J. W. C. Company, Inc. , 396 So. 2d 778, 788

(Fla. 1st DCA 1981). Avante at Jacksonville and Avante at St.

Cloud have the burden or proof in this matter.

52. The Plan, Version XXX, effective date July 1, 2006,

has been adopted and incorporated by reference in Rule 59G-

6.010, Florida Administrative Code.

53. The Plan, Version XXXI, effective date August 26,

2007, has been adopted and incorporated by reference in Rule

59G-6.010, Florida Administrative Code.

54. The Plan, Versions XXX and XXXI, incorporates by

reference The Provider Reimbursement Manual (CMS PUB.15-1).

55. Version XXXI of the Plan is applicable to this matter.

56. Section IV J.1. of the Plan is not at issue in this

case and does not apply to the facts of this case.

57. The Plan Section IV J does not specifically address

settlement dollars. The evidence demonstrates that AHCA

examined only the Plan Section IV J and determined that the IRRs

should be denied. However, AHCA should have also examined CMS-

PUB.15-1 since both the Plan, Section IV J and CMS-PUB.15-1 are

used to determine reimbursable costs and since CMS-PUB.15-1 is a

standard. CMS-PUB.15-1 provides for settlements and indicates

when settlement dollars are allowable costs for reimbursement.

58. CMS-PUB.15-1, Section 2160.2 provides that settlements

in excess of the policy limits of insurance are allowable costs

and that the provider must satisfy the intermediary that the

policy coverage at the time of the loss represented prudent

management. The evidence demonstrates that the policy limits

were $10,000.00 for each facility and that the policy coverage

for each facility represented prudent management. Consequently,

the liability losses in excess of the policy limits were

$340,000.00 for Avante at Jacksonville and $80,000.00 for Avante

at St. Cloud. Hence, the liability losses for each facility

were allowable costs.

59. However, the general provision in CMS-PUB.15-1

provides that, if a provider chooses not to file a loss claim

with its insurance carrier for the losses covered, costs

incurred as a result of such losses are not allowable. CMS-

PUB.15-1, § 2160A. The evidence demonstrates that settlements

are general and professional liability costs. Further, the

evidence demonstrates that Avante at Jacksonville and Avante at

St. Cloud chose not to file a claim with their respective

insurance carrier for the losses covered by their insurance

policies from the settlements, which exceeded the policy limits.

Consequently, the losses incurred by Avante at Jacksonville and

Avante at St. Cloud were not allowable costs. CMS-PUB.15-1, §

2160A.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Agency for Health Care Administration

enter a final order denying the interim rate requests for an

increase for Avante at Jacksonville and Avante at St. Cloud.

DONE AND ENTERED this 18th day of September 2008, in

Tallahassee, Leon County, Florida.

__________________________________

ERROL H. POWELL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of September, 2008.

ENDNOTES

1/ The corrected case-style.

2/ Petitioners’ Exhibits numbered 13 and 14 were re-numbered as

Joint Exhibits numbered 1 and 2, respectively.

3/ Health Insurance Manual No. 15, also known as the Provider

Reimbursement Manual, published by the Department of Health and

Human Services, Health Care Financing Administration.

4/ AHCA agreed that Mr. Hagler was not an expert in insurance.

COPIES FURNISHED:

Peter A. Lewis, Esquire

Goldsmith, Grout & Lewis, P.A.

307 West Park Avenue, Suite 200

Tallahassee, Florida 32302

Karen Dexter, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive

Tallahassee, Florida 32308

Richard J. Shoop, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive, Mail Station 3

Tallahassee, Florida 32308

Holly Benson, Secretary

Agency for Health Care Administration

Fort Knox Building, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

Craig H. Smith, General Counsel

Agency for Health Care Administration

Fort Knox Building, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

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.