06-003489RX Manor Pines Convalescent Center, Llc vs. Agency For Health Care Administration Status: Closed DOAH Final Order on Wednesday, April 25, 2007.

Summary: A successful rule challenge where the rule added a criterion for computing the Medicaid reimbursement rate, which criterion violated clear legislative intent.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MANOR PINES CONVALESCENT )

CENTER, LLC , )

)

Petitioner , )

)

vs. ) Case No. 06 - 3489RX

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION , )

)

Respondent . )

)

FINAL ORDER

Pursuant to notice, this cause was heard by Linda M. Rigot,

the assigned Administrative Law Judge of the Division of

Administrative Hearings, on February 28, 2007, in Tallahassee,

Florida.

APPEARANCES

For Petitioner: Peter A. Lewis, E squire

Goldsmith, Grout & Lewis, P.A.

307 West Park Avenue, Suite 200

Tallahassee, Florida 32308

For Respondent: Brevin Brown, Esquire

Agency for Health Care A dministration

2727 Mahan Drive, Building 3

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue presented is whether Section V. B. 7. of the

Florida Title XIX Long - Term Care Reimbursement Plan which is

incorporated in Florida Administrative Code Rule 59G - 6.010 is an

invalid exercise of delegated legislative authority.

PRELIMINARY STATEMENT

Petitioner , Manor Pines Convalescent Center, LLC, filed its

Petition Challenging the Validity of Existing Rule on

September 15, 2006, challenging the validity of Section V. B. 7.

of the Florida Title XIX Long - Term Care Reimbursement Plan which

is incorporated in Florida Administrative Code Rule 59G - 6.010.

On November 8, 2006, Petitioner's Amended Petition Challengin g

the Validity of Existing Rule was filed pursuant to the agreed

Motion to Amend Petition.

Petitioner presented the testimony of Sharon Gordon - Girvin,

Scott Lipman, and Stanley W. Swindling, Jr. The Agency

presented the testimony of Ross Nobles. Addition ally,

Petitioner's Exhibits numbered 1 - 6 were admitted in evidence.

The T ranscript of the final hearing was filed on March 12,

2007. Petitioner's Proposed Final Order was filed on April 11,

2007, and Respondent's Proposed Final Order was filed on

April 11 and again on April 12. Those documents have been

considered in the entry of this Final Order.

FINDINGS OF FACT

1. Petitioner , Manor Pines Convalescent Center, LLC,

operates a skilled nursing home located in Ft. Lauderdale,

Broward County, Florida, kno wn as Manor Pines Convalescent

Center. Manor Pines currently participates in the Medicaid

program and has been issued provider number 25417700.

2. Respondent , Agency for Health Care Administration ,

administers the Florida Title XIX Long - Term Care Reimb ursement

Plan (hereinafter "the Plan") which is incorporated by reference

into Florida Administrative Code Rule 59G - 6.010 and which

establishes the methodology for determining reimbursement to

nursing homes for the care provided to Medicaid beneficiaries.

3. In accordance with the Plan, nursing homes

participating in the Medicaid program are reimbursed by Medicaid

on a per diem basis. The Medicaid per diem rate consists of

four cost components: the operating costs component, the

indirect patient care com ponent, the direct patient care

component, and a property component.

4. Rates are calculated by following the provisions of the

Plan and are cost - based in nature. Medicaid rates are normally

set twice per year, once in January and again in July.

5. The Plan contains numerous cost - saving mechanisms that

are employed to limit a provider's actual costs. Examples of

the cost - saving measures are class ceilings, cost ceilings, and

targets. Each of those cost - saving measures uses a "lesser of"

mechanism t o ensure that a provider's Medicaid rate does not

exceed the various mechanisms regardless of the actual costs to

the provider.

6. The class ceiling limits the amount that any facility

in a particular class of providers can be reimbursed in an

affected cost component. The class ceilings are based upon the

size of the facility and the facility's geographic location.

7. The cost ceiling caps the amount of costs that Medicaid

will reimburse in any given component.

8. The target limits check the amount of growth that

Medicaid will reimburse a provider in any one component between

rate semesters.

9. Additionally, the Plan also contains a provision that

is commonly referred to as the "low occupancy adjustment."

According to Section V. B. 7. of the Plan , nursing homes are

penalized in their reimbursement rates if they do not meet

occupancy thresholds.

10. In the version of the Plan in effect on January 1,

2006 (Version XXIX), the low occupancy adjustment provision

reduced the reimbursement rate establ ished for nursing homes for

each of the reimbursement components (except the property

component under the fair rental value system) that make up the

nursing homes' Medicaid reimbursement rate. The Agency amended

the low occupancy adjustment on July 1, 200 6 (Version XXX). The

effect of the amendment was that the adjustment no longer

affected the direct patient care component and only affected the

operating and indirect patient care components of the Medicaid

per diem.

11. The low occupancy adjustment is calculated by

determining a low occupancy threshold and then reducing the

established Medicaid per diem of any provider that does not meet

that threshold.

12. The low occupancy adjustment is a statement of general

applicability that applies to all nu rsing homes in Florida that

participate in the Medicaid program.

13. In the January 1, 2006, rate - setting semester, Manor

Pines' Medicaid per diem was limited by the low occupancy

adjustment. Manor Pines was penalized $11.30 per patient day in

the oper ating component, $25.40 per patient day in the direct

patient care component, and $15.90 per patient day in the

indirect patient care component.

14. In the July 1, 2006, rate - setting semester, Manor

Pines' Medicaid per diem was also limited by the low o ccupancy

adjustment. At that time, Manor Pines was penalized $7.61 per

patient day in the operating component and $10.23 per patient

day in the indirect patient care component.

15. It is illogical to adjust any component of the

Medicaid nursing home pe r diem due to occupancy because the

Medicaid per diem is determined based upon an allocation of

costs that already factors Medicaid utilization in the

methodology. Simply put, Medicaid's share of costs is limited

in the per diem rate by a facility's Medic aid utilization.

Further limiting those costs based upon occupancy creates a

penalty that has no basis in law or fact.

16. At the time of the final hearing in this cause, Manor

Pines had been participating in the Medicaid program for four or

five years after 35 years as a private - pay facility.

17. Nearly two - thirds of all residents in nursing homes in

Florida and in Broward County are Medicaid recipients. However,

the low occupancy adjustment creates a disincentive to accept

Medicaid residents becau se a nursing home affected by the

adjustment loses reimbursement on each Medicaid resident in its

facility.

18. The low occupancy adjustment is illogical because it

creates this disincentive to admit Medicaid residents. The

adjustment is illogical becaus e a facility attempting to

increase its occupancy to escape the adjustment must admit two

Medicaid - eligible individuals for every individual that is not

Medicaid - eligible. Yet, each Medicaid - eligible patient causes

the facility affected by this adjustment to lose more money.

The effect, therefore, of this adjustment is that it actually

and illogically hampers the facility's ability to increase its

occupancy and ultimately escape the penalty.

19. The Legislature has created five different diversion

progr ams that are designed to divert people eligible for nursing

home care from nursing homes to home - and community - based

services. One of the major diversion projects has helped to

reduce nursing home occupancies in Broward County. It has

created a reductio n in the overall need for nursing home beds in

Broward County despite increasing population and, therefore, has

created increased competition for nursing home residents among

the nursing home community.

20. The low occupancy adjustment forces nursing home s to

recruit and retain residents in their facilities, contrary to

the legislative intent enumerated in the various diversion

statutes.

21. The low occupancy adjustment illogically imposes a

penalty based upon occupancy when the Legislature is actively

creating programs designed to reduce nursing home occupancies.

22. Nursing homes are required to provide minimum staffing

hours to their residents.

23. During the January 1 and the July 1, 2006, rate

semesters, Manor Pines complied with those minimum s taffing

requirements. The costs, as stated in the direct care component

of the January 1, 2006, rate sheets, accurately reflect the

costs associated with complying with the minimum staffing

requirements.

24. The low occupancy adjustment has created a sit uation

at Manor Pines where in order to meet the minimum staffing

requirements, Manor Pines ha s had to reduce staff in other

areas, has had to forego completing certain repairs brought on

by recent hurricanes, and has cancelled numerous projects at the

fac ility that were intended to improve and enhance the facility

in the eyes of prospective nursing home residents, such as

replacing crank beds with electric beds.

25. The addition of new nursing home beds in Florida has

been under a moratorium for years and will be for, minimally,

four more years unless modified by law . Despite increasing

population, there has been no corollary increase in nursing home

residents. The statistics demonstrate the success of the

l egislative programs to divert residents from nu rsing homes, and

they render the Agency's low occupancy adjustment a penalty,

unsupported by reason.

CONCLUSIONS OF LAW

26. The Division of Administrative Hearings has

jurisdiction over the subject matter hereof and the parties

hereto. §§ 120.56 (3), 120.569 , and 120.57(1), Fla. Stat.

27. The parties have stipulated that Petitioner has

standing to bring this challenge to the Agency's Rule.

28. Section 120.56(3), Florida Statutes, provides that

Petitioner has the burden of proving by a prepondera nce of the

evidence that the low occupancy adjustment is an invalid

exercise of delegated legislative authority. Petitioner has met

its burden as to each of the bases for invalidity alleged in its

Amended Petition Challenging the Validity of Existing Rule .

29. Section 120.52(8), Florida Statutes, defines "invalid

exercise of delegated legislative authority . " Those bases which

Petitioner contends makes the low occupancy adjustment invalid

are set forth in that Subsection as follows:

* * *

(b) The agenc y has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54(3)(a)1.;

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required

by s. 120.54(3)(a)1.;

* * *

(e) The rule is arbitrary or capricious. A

rule is arbitrary if it is not supported by

logic or the necessary facts; a rule is

capricious if it is adopted without thought

or reason or is irrational. . . .

30. Medicaid reimbursement for nursing homes is

established in accordance with the principles set forth in the

Florida Title XIX Long - Term Care Reimbursement Plan. The Plan

is incorporated by reference in Florida Administrative Code Rule

59G - 6.010. The statutory authority for the development of th e

Plan is found in Section 409.908(2)(b), Florida Statutes. That

Section provides, in pertinent part, as follows:

(b) Subject to any limitations or

directions provided for in the General

Appropriations Act, the agency shall

establish and implement a Flor ida Title XIX

Long - Term Care Reimbursement Plan (Medicaid)

for nursing home care in order to provide

care and services in conformance with the

applicable state and federal laws, rules,

regulations, and quality and safety

standards. . . .

* * *

2. The ag ency shall amend the long - term

care reimbursement plan and cost reporting

system to create direct care and indirect

care subcomponents of the patient care

component of the per diem rate. These two

subcomponents together shall equal the

patient care compon ent of the per diem rate.

Separate cost - based ceilings shall be

calculated for each patient care

subcomponent. The direct care subcomponent

of the per diem rate shall be limited by the

cost - based class ceiling, and the indirect

care subcomponent may be l imited by the

lower of the cost - based class ceiling, the

target rate class ceiling, or the individual

provider target.

* * *

It is the intent of the Legislature that the

reimbursement plan achieve the goal of

providing access to health care for nursing

home residents who require large amounts of

care while encouraging diversion services as

an alternative to nursing home care for

residents who can be served within the

community. The agency shall base the

establishment of any maximum rate of

payment, whe ther overall or component, on

the available moneys as provided for in the

General Appropriations Act. The agency may

base the maximum rate of payment on the

results of scientifically valid analysis and

conclusions derived from objective

statistical data p ertinent to the particular

maximum rate of payment.

31. Thus, the Legislature has directed the Agency to

develop a Plan for reimbursement to nursing homes for Medicaid

patients. Further, the Legislature has directed the Agency that

the Plan take into a ccount not only applicable state and federal

laws and rules but also quality and safety standards. Lastly,

the Legislature has directed the Agency that the Plan encourage

the diversion of patients who can be served in the community

rather than in skilled nursing homes.

32. The Agency has adopted the Plan by reference in

Florida Administrative Code Rule 59G - 6.010. The formula for

computing the low occupancy adjustment is found in Section

V. B. 7. of the Plan. Version XXIX of the Plan was effective on

July 1, 2005, and affected Petitioner's Medicaid per diem rate

commencing January 1, 2006. Version XXX of the Plan was

effective on July 1, 2006, and affected Petitioner's Medicaid

per diem rate commencing July 1, 2006. The former version

resulted in a reduction in the reimbursement to Petitioner for

the operating component, direct patient care component, and the

indirect patient care component. The latter version resulted in

a reduction in the reimbursement to Petitioner for the operating

component and the indirect patient care component. Thus, the

Agency simply stopped applying the low occupancy adjustment to

the direct patient care component of Petitioner's cost report.

33. The Agency has exceeded its grant of rulemaking

authority in its promulga tion of the low occupancy adjustment.

The Rule itself represents that the specific authority for the

Rule is Section 409.919, Florida Statutes. That Section does

not contain specific authority for the reimbursement methodology

for nursing home services, but rather is only a general grant of

rulemaking authority for both the Agency and the Department of

Children and Family Services. A general grant of rulemaking

authority is insufficient to allow the Agency to adopt the Rule.

§§ 120.52(8) and 120.536(1), Fla. Stat. Accordingly, no

specific authority for the Rule has been cited by the Agency,

and none has been found.

34. The Rule itself further recites that the law

implemented is Section 409.908, Florida Statutes. That

statutory Section covers many asp ects of reimbursement to many

types of Medicaid providers, including hospitals, ambulatory

surgical centers, family planning services, hospices and many

other providers. Only Subsection (2)(b) of the statute pertains

to nursing homes. It is assumed, ther efore, that only that

Subsection is the law being implemented and under consideration

herein.

35. In that Subsection the Legislature has set forth

statutory limits on reimbursement for both the direct and the

indirect patient care components. That Subsec tion provides that

the direct patient care component may only be limited by "the

cost - based class ceiling." In addition, the same Subsection

provides that the indirect patient care component may only be

limited "by the lower of the cost - based class ceilin g, the

target rate class ceiling, or the individual provider target."

There is no other language relating to other adjustments or

limitations with respect to those components. Further, the

Legislature has made no mention of any permitted cost limitation

to the operating component.

36. At issue in this case is the validity of a provision

of the Plan known as the low occupancy adjustment. According to

the Plan, if a Medicaid provider does not meet a certain level

of occupancy, the provider's Medicaid pe r diem rate is reduced

by this adjustment. This adjustment is in addition to any other

limitation that might occur due to statutorily - recognized cost -

saving mechanisms. The Plan contains numerous statutorily -

recognized cost - saving limitations, such as a class ceiling, a

target class ceiling, and a provider - specific target rate. Each

of those mechanisms limit the amount of costs that Medicaid will

reimburse and are designed to either cap the maximum amount of

reimbursement allowed or to limit the amount o f cost growth

between rate semesters. The low occupancy adjustment further

reduces a provider's reimbursement and is based solely on

occupancy regardless of actual cost or growth of cost of a

p rovider.

37. The low occupancy adjustment operates as, and

therefore is, a penalty the Agency places on nursing homes that

do not meet certain occupancy thresholds. Whether the

adjustment is viewed as a penalty or simply as an adjustment is

irrelevant. The low occupancy adjustment is an invalid exercise

of deleg ated legislative authority in that the statutory

authority does not authorize the Agency to create either an

adjustment or a penalty for low occupancy.

38. Further, the Legislature has enumerated certain cost

limitations to be used by the Agency in settin g a provider's

Medicaid reimbursement per diem rate. The authorized cost -

driven mechanisms are designed to control costs to the Medicaid

program. The low occupancy adjustment, on the other hand, is

driven by utilization and further reduces reimbursement that has

already been limited by the cost - driven provisions permitted by

the Legislature. The low occupancy adjustment not only has no

statutory basis but also modifies and enlarges the specific

cost - controlling provisions established by the Legislature. It

is, therefore, for that additional reason, an invalid exercise

of delegated legislative authority.

39. The low occupancy adjustment artificially reduces the

appropriate reimbursement levels in contravention of the

statutory directive to establish re imbursement to nursing homes

so that they can provide care that complies with applicable

state and federal statutes and rules and with quality and safety

standards. As explained above, the Agency applied the occupancy

penalty to the operating, direct pati ent care, and indirect

patient care components for the January 2006 rate semester , but

only applied the occupancy penalty to the operating and indirect

patient care components for the July 2006 rate semester.

40. The direct patient care component consis ts only of

salaries for nurses and certified nursing assistants who

directly provide care to Medicaid residents. Those costs are

variable in that they fluctuate based upon the amount of

utilization of the facility by Medicaid patients. Manor Pines'

cost report upon which the January 1, 2006, rate semester per

diem was based reflected direct patient care costs of $72.14 per

patient day. Those costs represent Manor Pines' actual costs of

providing the staff to meet the minimum staffing requirements of

the residents actually at the facility. The low occupancy

adjustment reduced that reimbursement to $46.75 per patient day,

effectively reducing Manor Pines' direct patient care costs by

approximately 30 percent. The low occupancy adjustment is

arbitrary and capricious with respect to the direct patient care

component.

41. Effective July 1, 2006, the Agency amended the low

occupancy adjustment by deleting the adjustment to the direct

patient care component , but retaining the adjustment to the

indirect patie nt care and the operating components. The

indirect patient care component consists of costs that are

associated with patient care but are not nursing and nursing

assistants' salaries. Operating costs consist of costs that are

associated with keeping the facility operating, such as

electric, water, and administrative costs.

42. The indirect patient care component has statutorily -

permissible cost limitations: cost - based class ceilings, the

target rate class ceilings, and the individual provider targets.

The statute contains no language that would permit a cost

limitation in the operating component. The low occupancy

adjustment reduces Medicaid's reimbursement of those costs

although those costs are essential to the operation of the

facility, including basic necessities. The adjustment,

therefore, violates the legislative directive to provide

reimbursement that allows nursing homes to provide care in

conformance with applicable state and federal statutes and rules

and quality and safety standards.

43. The low occupancy adjustment is also an invalid

delegation of legislative authority because it is arbitrary and

capricious. It penalizes nursing homes for low occupancy at a

time when the Legislature has established numerous successful

programs to divert nursing home residents to home - and

community - based services. The enabling legislation itself,

Section 409.908(2)(b)6, Florida Statutes, specifically states

this Legislative intent to place in nursing home residents who

require large amounts of care while diverting residents who can

be served in the community. In addition to contravening the

statute, the adjustment is, therefore, arbitrary and capricious.

In penalizing lower occupancies, the adjustment actually

provides an incentive for nursing homes to accept and retain any

resident that meets even the lowest admission criteria.

44. The Legislature has stated its intent to divert

nursing home prospective residents and to move nursing home

residents to less restrictive settings, not only in the statute

u nder consideration herein, but also in the various statutes

creating those diversion programs. See , e.g. , §§ 430.202

(community care for the elderly), 430.601 (home care for the

elderly), 430.710(1) (long - term care community diversion pilot

project), and 430.7031 (nursing home transition program), Fla.

Stat.

45. It is clear from a reading of those statutes that the

Legislature intends to reduce nursing home occupancy in an

effort to control costs. The low occupancy adjustment has the

exact opposite effec t. The adjustment creates incentive to keep

nursing home facilities occupied. It is illogical and an

invalid exercise of delegated legislative authority for the

Agency to penalize a nursing home for having reduced occupancy

when the Legislature has state d on numerous occasions that its

intent is to reduce nursing home occupancies. The low occupancy

adjustment is also arbitrary since the Legislative emphasis is

placed on diverting residents from nursing home and placing

these individuals in home - and comm unity - based settings.

46. The low occupancy adjustment is also arbitrary because

it creates a penalty, the effect of which increases with every

Medicaid day being utilized. As a facility attempts to achieve

a higher occupancy level, the adjustment create s a deeper

economic penalty. Since the low occupancy adjustment affects

the per diem rate after the statutorily - permissible cost

limitations are factored into the reimbursement rate, every

Medicaid resident represents a loss of revenue to the facility.

Es sentially, the Agency is requiring facilities affected by this

adjustment to incur greater economic loss in order to try to

escape this penalty. This arbitrary adjustment is for this

additional reason an invalid exercise of delegated legislative

authority .

47. Accordingly, Petitioner has proven that the low

occupancy adjustment exceeds the Agency's grant of rulemaking

authority, contravenes the specific provisions of law

implemented, is arbitrary because it is illogical, and is

capricious because it is irrational.

48. On the other hand, the Agency has offered no

explanation for the existence of its low occupancy adjustment or

for its change in the costs components affected between V ersion

XXIX and V ersion XXX of the Plan. The Agency's only proof in

t his proceeding was limited to its assertions that Petitioner

knew about the adjustment before it became a Medicaid provider,

that Petitioner could sell some of its beds thereby increasing

its occupancy rate, and that, ignoring any increases over the

years in Broward County population, nursing home occupancy in

Broward County is staying about the same.

49. Petitioner seeks an award of its attorney's fees and

costs incurred in this proceeding pursuant to Section

120.595(3), Florida Statutes. That Section re quires that if a

rule is declared invalid, an order shall be rendered against the

Agency for reasonable costs and reasonable attorney's fees

unless the Agency demonstrates that its actions were

substantially justified or that special circumstances exist

wh ich would make an award of attorney's fees and costs unjust.

The Agency has offered no evidence that its adoption of the low

occupancy adjustment had a reasonable basis in law or fact;

rather, Petitioner has proven that the adjustment is irrational.

Furt her, the Agency has suggested no special circumstances that

would make the award sought by Petitioner unjust.

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED that :

1. Section V. B. 7. of the Florida Title XIX Long - Term

Care Reimbursement Plan which is incorporated in Florida

Administrative Code Rule 59G - 6.010 is an invalid exercise of

delegated legislative authority.

2. The Agency shall pay to Petitioner its reasonable

attorney's fees and its reasonable costs incurred in this

proceeding in an amount not to exceed $15,000.

DONE AND ORDERED this 25th day of April, 2007 , in

Tallahassee, Leon County, Florida.

S

LINDA M. RIGOT

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 (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 25th day of April, 2007 .

CO PIES FURNISHED :

Peter A. Lewis, Esquire

Goldsmith, Grout & Lewis, P.A.

307 West Park Avenue, Suite 200

Tallahassee, Florida 32308

Brevin Brown, Esquire

Agency for Health Care Administration

2727 Mahan Drive, Building 3

Tallahassee, Florida 32308

Liz C loud, Program Administrator

Administrative Code

Department of State

R.A. Gray Building, Suite 101

Tallahassee, Florida 32399

F. Scott Boyd, Executive Director

and General Counsel

Joint Administrative Procedures Committee

120 Holland Building

Tallahasse e, Florida 32399 - 1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appella te Procedure. Such proceedings are commenced by

filing the original notice of appeal with the Clerk of the

Division of Administrative Hearings and a copy, accompanied by

filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.