Title: Ex parte Wilbanks Health Care Services, Inc., d/b/a Sylacauga Health Care Center. PETITION FOR WRIT OF CERTIORARI TO THE COURT OF CIVIL APPEALS (In re: Wilbanks Health Care Services, Inc., d/b/a Sylacauga Health Care Center v. Alabama Medicaid Agency)

State: alabama

Issuer: Alabama Supreme Court

Document:

Rel: 10/12/07
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2007-2008
_________________________
1060218
_________________________
Ex parte Wilbanks Health Care Services, Inc., d/b/a
Sylacauga Health Care Center
PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF CIVIL APPEALS
(In re:  Wilbanks Health Care Services, Inc., d/b/a
Sylacauga Health Care Center
v.
Alabama Medicaid Agency)
(Montgomery Circuit Court, CV-05-954;
Court of Civil Appeals, 2050132)
WOODALL, Justice.
1060218
2
Wilbanks Health Care Services, Inc., d/b/a Sylacauga
Health Care Center ("Wilbanks"), sought certiorari review of
a judgment of the Court of Civil Appeals, which affirmed a
judgment of the Montgomery Circuit Court, which, in turn,
affirmed the decision of the Alabama Medicaid Agency ("the
Agency") denying Wilbanks reimbursement for certain payments
Wilbanks had made to American HealthTech, Inc. ("AHT"),
related to Wilbanks's purchase and use of computer software.
We reverse and remand.
I. Procedural Background
In 2001, Wilbanks entered into a "purchase and license
agreement" ("the agreement") with AHT, a company that develops
software for the long-term health-care industry, for the
purchase and license of computer hardware and software,
respectively.  The "license fees for AHT application software"
included a set price of $266 per month for "software
maintenance" 
("the 
monthly fees").  Additionally, the
agreement provided for additional hourly fees described as
"on-site and telephone support" ("the hourly fees").  The
agreement also provided, in pertinent part:
"Implementation of the software is described on
Schedule B and fees for this service are included in
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3
the Software License and Implementation Fees under
Installed Product on Schedule A. ...
"Support fees after implementation will be charged
at $83.00 per hour for application on-site and
telephone support and $94.00 per hour for standard
technical on-site and telephone support.  Software
maintenance fees will be ... payable [monthly] in
advance.  Payment of the fee entitles the User to
any updates to the programs covered under this
Agreement and the first hour of support time each
month.  Unused support time for a particular month
is not carried forward.  The initial monthly payment
will cover the maintenance period through the first
full month after the system is installed.  Software
maintenance and support fees may be subject to state
and local taxes.
"The rates and fees shown in the previous two
paragraphs reflect AHT's current rates.  As the cost
of providing such support and maintenance services
increases, AHT reserves the right to adjust these
fees annually.  AHT will endeavor to keep any such
increases as reasonable as possible and will provide
the User with written notice of any increase thirty
(30) days in advance.
"The software maintenance Fee is due for the length
of time that the User uses the AHT software.  The
User's right to use this software and related
materials shall cease upon failure to make payment
of the software maintenance fee.  Such failure to
make 
payment 
of 
this 
fee 
will 
constitute 
a
termination of this agreement ... if AHT so elects."
(Emphasis added.)
From July 1, 2001, through June 30, 2002, Wilbanks paid
AHT $2,885 in monthly fees.  Wilbanks sought reimbursement of
those fees as an operating expense from the Agency, which
1060218
See Wilbanks Health Care Servs., Inc. v. Alabama Medicaid
1
Agency, [Ms. 2050132, October 20, 2006] ___ So. 2d ___, ___
(Ala. Civ. App. 2006).
Regulation 560-X-22-.14(2) provides:
2
"Effective September 1, 1991, a Fair Rental System
will be used to reimburse property costs.  The Fair
Rental System reduces the wide disparity in the cost
of capital payments for basically the same service
and makes the cost of capital payment fairer to all
participants in the program.  The Fair Rental System
is a rate of return on current asset values and will
be used in lieu of depreciation and/or lease
payments on land, buildings, and major movable
equipment normally used in providing patient care."
4
administers the Alabama Medicaid Program.  See Ala. Admin.
Code 
(Medicaid), 
r. 
560-X-1-.03. 
 
The 
Agency 
denied
reimbursement, taking the position that the monthly fees were
more properly classified as a capital expenditure, indirectly
reimbursable  
pursuant 
to 
the 
Medicaid 
"Fair 
Rental"
1
provisions of Ala. Admin. Code (Medicaid), r. 560-X-22-.14,2
rather than as an operating expense.
After its reimbursement request was denied, Wilbanks
requested a fair-hearing appeal before the Agency.  Following
that proceeding, the hearing officer recommended the denial of
reimbursement.  The Medicaid commissioner adopted that
recommendation 
and 
entered 
a 
final 
decision 
denying
reimbursement.  Wilbanks petitioned the Montgomery Circuit
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5
Court for review of the commissioner's decision.  In a
judgment entered on October 3, 2005, the circuit court
remarked "that something is inherently unfair and not rational
about this entire process."  Nevertheless, it affirmed the
commissioner's decision denying reimbursement.  Wilbanks then
appealed the circuit court's judgment to the Court of Civil
Appeals.  In a plurality opinion, with one judge dissenting
and two judges concurring only in the result, the Court of
Civil Appeals affirmed the judgment.  Wilbanks Health Care
Servs., Inc. v. Alabama Medicaid Agency, [Ms. 2050132, October
20, 2006] ___ So. 2d ___ (Ala. Civ. App. 2006).
We granted Wilbanks's petition to consider its assertion
that the decision of the Court of Civil Appeals is in conflict
with prior decisions of that court prescribing the compliance
of State agencies with their own rules and regulations,
including Hand v. State Department of Human Resources, 548 So.
2d 171 (Ala. Civ. App. 1988), aff'd, 548 So. 2d 176 (Ala.
1988), which stated: 
"Rules, regulations, and general orders of
administrative 
authorities 
pursuant 
to 
powers
delegated to them have the force and effect of laws
when they are of statewide application and so
promulgated that information of their nature and
effect is readily available or has become part of
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6
common knowledge.  State v. Friedkin, 244 Ala. 494,
14 So. 2d 363 (1943).  Moreover, where an agency
prescribes rules and regulations for the orderly
accomplishment 
of 
its 
statutory 
duties, 
its
officials 
must 
vigorously 
comply 
with 
those
requirements; regulations are regarded as having the
force of law and, therefore, become a part of the
statutes authorizing them.  American Federation of
Government Employees v. Callaway, 398 F. Supp. 176
(N.D. Ala. 1975)."
 
548 So. 2d at 173 (emphasis added).  According to Wilbanks,
the Agency failed to "vigorously comply" with standards  for
reimbursement set forth in its own regulations.  We agree.
II. Discussion
Judicial review of decisions of administrative bodies is
governed by Ala. Code 1975, § 41-22-20(k).  Such decisions may
be reversed where the "agency action is ... [i]n violation of
any pertinent agency rule."  § 41-22-20(k)(3).  Review of the
hearing officer's conclusions of law or application of law to
the facts is de novo.  Medical Licensure Comm'n of Alabama v.
Herrera,  918 So. 2d 918, 926 (Ala. Civ. App. 2005); State
Dep't of Human Res. v. Funk, 651 So. 2d 12, 16 (Ala. Civ. App.
1994).  We review the issue here presented de novo.
It is undisputed that "[t]he Agency does directly
reimburse nursing homes for the cost of maintaining equipment,
including computer software," pursuant to Ala. Admin. Code
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7
(Medicaid), r. 560-X-22-.10(3)(e).   Wilbanks, ___ So. 2d at
___ (emphasis added).  However, the Agency insists that the
monthly fees expended by Wilbanks are not for "true software
maintenance," Agency's brief, at 7 (emphasis added), but "are
in reality just part of the overall purchase price of the
software product."  Id. at 8.
To be sure, the undisputed evidence adduced before the
hearing officer revealed that the monthly fees disallowed by
the Agency are mandatory and payable monthly for as long as
Wilbanks uses the software.  They entitle Wilbanks to periodic
-- typically quarterly -- software updates/upgrades, which
"usually involved rewriting a line of code in the software to
fix an application that was not working properly or to respond
to a statutory or regulatory change."  Wilbanks, ___ So. 2d at
___.  The Court of Civil Appeals    
"conclude[d] that it was reasonable for the Agency
to decide that a monthly maintenance fee that must
be paid in advance to avoid termination of the
contract, that is based on a percentage of the
purchase price, and that encompasses a periodic
upgrade/update service provided for all users is in
the nature of a 'user fee' or a 'licensing fee' that
should be considered part of the purchase price of
the product and, therefore, is a capital expenditure
rather than an operating expense."
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8
___ So. 2d at ___ (emphasis added).  Although the Court of
Civil Appeals correctly noted that the Agency's "regulations
contain no definition of [the term] 'maintenance,'" ___ So. 2d
at ___, the problem, as we see it, is that the Agency does not
have unfettered discretion to define that term.
"Nursing Facility Reimbursement" is provided for in Ala.
Admin. Code (Medicaid), r. 560-X-22.  More specifically, r.
560-X-22-.02 provides, in pertinent part:
"(2) 
The 
Alabama 
Medicaid 
Program 
is
administered by Medicaid under the direction of the
Governor's office.  Reimbursement principles for
nursing facilities are outlined in the following
sections of this chapter.  These principles,
hereinafter referred to as 'Medicaid Reimbursement
Principles,' are a combination of generally accepted
accounting principles, principles included in the
State Plan, Medicare (Title XVIII) Principles of
Reimbursement, 
and 
principles 
and 
procedures
promulgated by Medicaid to provide reimbursement of
provider costs which must be incurred by efficiently
and economically operated nursing facilities.  These
principles are not intended to be all inclusive, and
additions, deletions, and changes to them will be
made by Medicaid on an annual basis, or as required.
Providers are urged to familiarize themselves fully
with the following information, as cost reports must
be submitted to Medicaid in compliance with this
regulation.
"(3) If this regulation is silent on a given
point, Medicaid will normally rely on Medicare
(Title 
XVIII) 
Principles 
of 
Retrospective
Reimbursement and, in the event such Medicare
1060218
The Agency cites no comparable provision from its
3
regulations or from any other source.  Indeed, according to
the Agency, whether the disputed costs are, in fact,
maintenance costs is a "factual issue [that] cannot be found
in [generally accepted accounting principles] or Medicare or
Medicaid regulations."  Agency's brief, at 14.
9
Principles provide no guidance, Medicaid may impose
other reasonability tests."
(Emphasis on "normally" original; all other emphasis added.)
Although the Agency's regulations do not define "software
maintenance" or prescribe 
the 
manner of reimbursement 
for such
maintenance costs, that subject is specifically treated in
Medicare 
(Title 
XVIII) 
Principles 
of 
Retrospective
Reimbursement, 
42 
C.F.R. 
§ 
413.130(b)(7)(2006). 
That
subsection  provides:
"Amounts included in lease or rental payments
for repair or maintenance agreements are excluded
from capital-related costs.  If no amount is
identified in the lease or rental agreement for
maintenance, the entire lease payment is considered
a capital-related cost subject to the provisions of
paragraph (b)(1) of this section."
(Emphasis added.)   This subsection unambiguously provides
3
that amounts paid for maintenance may be treated as a
"capital-related cost" only if the parties to the lease fail
to treat the subject of maintenance in their lease agreement.
1060218
10
The parties in this case clearly did treat the subject of
software maintenance in the agreement. 
The Agency argues that it is not bound by the terminology
used by the parties in the agreement.  This argument misses
the point, however, because the Agency most certainly is bound
by 42 C.F.R. § 413.130(b)(7), and by Hand, which stands for
the unremarkable proposition that State agencies are bound to
comply with their own regulations.
Regulation 
560-X-22-.02(3) 
requires 
the 
Agency 
to 
"rely,"
first, "on Medicare (Title XVIII) Principles of Retrospective
Reimbursement."  Only if those principles, which include 42
C.F.R. § 413.130(b)(7), "provide no guidance" can the Agency
resort to "other reasonability tests."  Section 413.130(b)(7)
provides clear guidance on the issue of reimbursement of costs
for software maintenance.  Thus, the Agency's inquiry should
have ended with 42 C.F.R. § 413.130(b)(7).
Instead, the Agency employed a narrow definition of
maintenance to justify treatment of the monthly fees as "a
capital-related cost."  The Agency's definition of "true
maintenance" depends largely on which party to the agreement
initiates the service.  "Vendor-generated updates" are
1060218
11
regarded as "capital-related" costs, while vendee-generated
requests for assistance are reimbursable as operating costs.
Agency's brief, at 20-21.  Thus, "an immediate fix to a
problem," such as when Wilbanks seeks assistance with a
"program [that] is not working properly," even where a
technician "come[s] out to the site and correct[s] ...
operating deficiencies in the program," falls within the
Agency's definition of maintenance.  Wilbanks, ___ So. 2d at
___.  However, costs associated with a technician's site visit
to "correct ... deficiencies" 
that 
prevent 
Wilbanks's
compliance with current statutory or regulatory provisions are
not within the Agency's definition of maintenance.  In
contrast to its treatment of the monthly fees, the Agency
generally treats the hourly fees as "true maintenance."
In the ordinary sense of the word, to "maintain" means to
"keep in force; keep in good order; keep in proper condition;
keep in repair; keep up; preserve; preserve from lapse,
decline, failure, or cessation; provide for; rebuild; [or]
repair."  Black's Law Dictionary 953 (6th ed. 1990) (emphasis
added).  Similarly, the word "maintenance" means "[t]he upkeep
or preservation of condition of property, including cost of
1060218
There is no allegation that Wilbanks and AHT drafted the
4
agreement so as to manipulate or thwart the applicable
regulations.  Cf. Wilbanks, ___ So. 2d at ___ (parties should
not be able, "by the wording of their agreements, completely
[to] thwart the executive or legislative policy underlying
administrative regulations").
12
ordinary repairs necessary and proper from time to time for
that purpose."  Id. (emphasis added).
"[W]here an agency prescribes rules and regulations for
the orderly accomplishment of its statutory duties, its
officials 
must 
vigorously 
comply 
with 
those 
requirements 
...."
Hand, 548 So. 2d at 173 (emphasis added).  This principle
prevents agencies from skirting their own regulations by the
use of crabbed, ad hoc definitions of regulation terms.
Likewise, "language used in an administrative regulation
should be given its natural, plain, ordinary, and commonly
understood meaning, just as language in a statute."  Alabama
Medicaid Agency v. Beverly Enters., 521 So. 2d 1329, 1332
(Ala. Civ. App. 1987).  Under 42 C.F.R. § 413.130(b)(7),
maintenance, as used in its ordinary sense -- software
maintenance  -- is what the agreement contemplated. In
4
adopting a cramped definition of software maintenance, the
1060218
13
Agency is doing something less than "vigorously comply[ing]"
with its regulations.  
III. Conclusion
For the foregoing reasons, the decision of the Court of
Civil Appeals is in conflict with Hand as to the duty of the
Agency to comply with pertinent administrative regulations,
particularly Regulation 560-X-22-.02(3) and 42 C.F.R. §
413.130(b)(7).  Consequently, the judgment of the Court of
Civil Appeals is reversed, and the cause is remanded to that
court for the entry of an appropriate order.
REVERSED AND REMANDED. 
Cobb, C.J., and See, Lyons, Stuart, and Bolin, JJ.,
concur.
Smith and Parker, JJ., concur in the result.
Murdock, J., recuses himself.