IN THE SUPREME COURT OF MISSISSIPPI NO. 2019-CC-00037-SCT METHODIST SPECIALTY CARE CENTER

v. MISSISSIPPI DIV

ISION OF MEDICAID AND DREW SNY

DER, IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE MISSISSIPPI DIV ISION OF MEDICAID

DATE OF JUDGMENT: 12/14/2018 TRIAL JUDGE: HON. PATRICIA D. W ISE TRIAL COURT ATTORNEYS: JANET McMURTRAY DION SHANLEY THOMAS L. KIRKLAND BEA TOLSDORF COURT FROM W HICH APPEALED: ATTORNEYS FOR APPELLANT: HINDS COUNTY CHANCERY COURT ANDY LOW RY THOMAS L. KIRKLAND BEA TOLSDORF ATTORNEYS FOR APPELLEES: JANET McMURTRAY SAMUEL P. GOFF OFFICE OF THE ATTORNEY GENERAL BY: LAURA L. GIBBES NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES DISPOSITION: AFFIRMED - 05/28/2020 MOTION FOR REHEARING FILED: MANDATE ISSUED:

BEFORE KITCHENS, P.J., MAX W ELL AND CHAMBERLIN, JJ. CHAMBERLIN, JUSTICE, FOR THE COURT: ¶1. Methodist Specialty Care Center is the only nursing f a cility f or the severely

disabled (NFSD) in the state. NFSDs generally incur h igher c osts than other n ursing f a cilities, andbecause of th is, Methodist receives a percentage a djustm e n t to its new-bed-value (NBV)

c a l c u l a t ion when the M ississippi Division of Medicaid (DOM) determ ines how m uch it should reim

burse M ethodist f

or its property costs through the DOM’s f air-rental sy stem

. A NBV is intended to ref

lect w hat it would cost t o p u t a n ew bed into service in a nursing f acility today

. Methodist had received a NBV adjustm ent of 328.178 percent added to the standard NBV every y ear since it opened in 2004 until State Plan Am e ndm e nt (SPA) 15-004 was enacted. ¶2. In 2012, the M ississippi Legislature directed the DOM to develop a plan to revise its reim bursem ent m ethodology f or nursin g f

acilities. The DOM com plied and s ubm itted its

recom m endations f

or revisions to the Legislature in January 2014. During the 2014 Regular Session, the Legislature passed House Bill 1275, which authorized the DOM to update and revise several provisions within the State Plan. In 2015, the DOM’s revisions were enacted in SPA 15-004. SPA 15-004 substantially i ncreased the standard, universally applied NBV f or a ll nursing f

acilities in the state. The a m endm ent also chang e d t h e NFSD’s NBV adjustm ent rate and f

orm ula. Since Methodist opened in 2004, the NFSD’s NBV had been calculated by adding 328.178 percent to the s t a n dard NBV, but the originally intended version of SPA 15-004 proposed to chang e t h e N F S D ’ s NBV to be 1 75 percent of the standard NBV. These changes to Methodist’s a djustm ent r a t e m ade it experience a substantial decrease i n its N BV, while a ll other nursing f acilities in the state w ere receiving an increase in their NBVs. ¶3. Aggrieved by the decrease in its NBV, Methodist appealed the DOM’s changes to its

2NBV that were e nacted in S PA 15-004. The DOM initially denied Methodist’s appeal based

on Methodist’s f

a ilure to take issue with the a me n d me nt during the public-notice and

com m ent p eriod. Af

ter receiving notice of the denial, Methodist renewed its appeal, and the DOM agreed to hold an adm inistrative hearing on the m atter. ¶4. Af ter the hearing, the adm i nistrative h earing of f icer (AHO) s ubm itted his opinion to the DOM. The AHO f

ound that the DOM had properly proposed a nd i m p lem ented SPA 15- 0 0 4 a nd u

pheld the decreased percentage adjustm ent to Methodist’s NBV. The A H O , however, also determ ined t hat the DOM had m iscalculated Methodist’s N BV adjustm ent. The D OM had planned to calculate Methodist’s adjustm ent as 175 percent of the base NBV, but the AHO f

ound that Methodist’s adjusted N BV s hould be calculated in the sam e m anner

as it was calculated pream endm ent—by taking 175 percent o f the standard N BV and adding that value to the standard N BV. The AHO’s correction to the f orm ula adjusted Methodist’s NBV f o r 2015 f rom $159,800 to $250,800. ¶5. The D OM’s e x e c u t i v e d i r ector af f irm ed the AHO’s opinion a nd a d opted it as the DOM’s f inal decision on the m atter. Methodist still f elt aggrieved becau s e its NBV adjustm ent r a te had not been restored to the pream endm ent rate. Methodist appealed the DOM’s f inal decision to the Chancery Court of the First Judicial District of Hinds County

. The chancellor af

f irm ed the DOM’s f

inal decision. Methodist now appeals to this Court. FACTS AND PROCEDURAL HISTORY ¶6. Methodist is the only NFSD in the state. An NFSD is a long-term -care f acility that specializes in the treatm ent of individuals with se vere disabilities, i ncluding s p inal-cord

3injuries, closed head i njuries, perm anent v entilator-dependent patients, p e r manent

tracheotom y patients, quadriplegia patients a nd other patients w ho require total and

m axim u m assistance with daily living activities. ¶7. In 2000, M ethodis t a p p l i e d f o r a c e r tif

icate of need (CON) seeking to construct Mississippi’s f

irst long-term nursing f

acility f or the severely disabled a nd listed the projected

cost of building such a f

a cility at approxim ately $7.5 m illion. Because no such f a cility had been b uilt within the state bef ore, the DOM and Methodist w orked together at the outset of the NFSD’s creati o n t o c o m e up with a reim bursem ent m ethodology that would f airly

com pensate Methodist f

o r the cost of constructing the f acility

. Bef

ore the f acility was ever built, the two p a rties agreed that the DOM would n eed to adjust Methodist’s new-bed r at e by 328.178 percent i n order to f a irly com pensate M ethodist f

or its incurred property costs f or construction of the N FSD. Methodist’s adjustm ent r ate was added to the State Plan at Chapter 3-4. ¶8. F o u r c a t e g o r i e s o f n u r s i n g f a c i l i t i e s r e c e i v e a d j u s t me n t s t o t h e i r NBVs—interm e diate-care f acilities f or the intel l ectually d isabled (ICF/IID), psy chiatric residential-treatm ent f

acilities (PRTF), Alzheim er’s u nits and N FSDs. Since Methodist f irst began operating in 2004, i ts p r o p e rty -reim bursem ent rate was c alculated by taking adding 328.178 percent of the standard NBV to the standard NBV a m ount. This m anner of calculation ef

f ectively s et Methodist’s reim bursem ent rate at 428.178 percent of the standard NBV. Alzhe i me r ’ s units are also calculated in this “percentage plus” m anner, and Alzheim er’s units’ adjustm ent percentage is a lso provided in C hapter 3-4 of the State Plan.

4The adjustm ent percentages f or ICF/IIDs and PRTFs are not s tated within Chapter 3-4. Both ICF/IIDs and P RTFs have their NBV adju s t me n t s c alculated by taking their stated percentage adjustm ent of the standard N BV, but the standard N BV is not a d d e d t o the percentage. ¶9. In 2012, the Legislature passed H ouse B i l l 4 2 1

. House Bill 421 directed the DOM

to “ develop a plan providing revisions to the current reim bursem ent m ethodology f or nursing f acility s ervices.” H.B. 421, Reg. Sess., 2012 Mis s . L aws ch. 530, § 5. In response to the legislation, the DOM c reated a Nursing Facility Reim b ursem ent M e t h o d ology Revision Com m i ttee (Com m ittee) com prised of DOM p ersonnel, industry people and other c oncerned stakeholders. The Com m i ttee reached an agreem ent on a n ew reim bursem ent plan, and the DOM subm itted its proposed plan to the Legislature in January 2014. The report stated that the Com m i ttee recom m ended that updates b e m ade to the DOM’s f air-rental-value calculation, as f

ollows:

• Increase the value of a nursing f

acility bed to $91,200,

• Increase the a nnual depreciation am ount f rom 1% to 1.75% f

or all longterm care f acilities,

• Increase the m axim um allowed depreciation f

rom 3 0% to 50% f

or all long term care f acilities, and

• Decrease the r ental f actor f rom 7. 5 % t o 5 .35% while m aintaining the 2% risk prem ium

f or all long-term

care f acilities. The r eport did not include any proposed changes to percentage adjustm ents to the NBVs f or those f a cilities that received them

. ¶10. Af ter r e v i e w i n g t h e C o mmi t t e e ’ s r e p o r t , the Legislature passed House Bill 1275 during the 2014 session. House Bill 1275 stated that

5On or af ter January 1, 2015, the division shall update the case-m i x pay m ent sy stem resource utilization g r o u p er and classif ications a nd f

air rental reim bursem e nt s y stem

. The division s hall develop and i m p lem e nt a pay

m ent add-on t o reim

burse nursing f

acilities f or v e n t ilator dependent resident services. H.B. 1275, Reg. Sess., 2014 Miss. Laws ch. 488, § 1 (codif ied as am ended at M iss. Code Ann. § 43-13-117(A)(4)(d) (Rev. 2015)). H ouse Bill 1275 was s igned by the governor, and this portion of

the bill becam e Mississippi Code Section 43-13-117(A)(4)(d). ¶11. Af ter receiving the Legislature’s directive to update t h e n u r sing f acility fair-rentalreim bursem ent sy stem , the DOM b egan draf ting am e ndm ents to the State Plan in Novem ber and Decem

ber of 2014. It was not until the DOM actually started writing the am endm ents to the State Plan that it f i rst exam ined the a djusted-bed values of ICF/IIDs, P R TFs, Alzheim er’s units, a nd NFSDs. W hile exam ining the a d justed NBVs, the D OM noticed that under the old rates, Methodist had alm ost com p letely recouped its initial investm ent in just eleven y ears. This f

act, coupled with the DOM’s f ear that M ethodist would receive a windf all as a result of the r ebased NBV led the DOM to m ake one of its last changes to the SPA bef ore subm itting it f

or approval to CMS and decreasing the NFSD’s adjustm ent f rom 328.178 percent to 175 p ercent. If Methodist’s NBV continued to be adjusted with a 328.178 percent add-on af

ter the standard NBV w a s r e b ased as $91,000 in SPA 15-004, then Methodist’s NBV would sky rocket f rom $226,638.92 in 2012 t o $390,498.00 in 2015—an increase of

$163,859.08 per bed. ¶12. In Decem

ber 2014, the DOM published notices in s everal newspapers of the proposed changes to i ts long-term

- care f a cility -reim

b ursem ent m ethods—SPA 15-004—as required

6by the public-notice requirem ents o f 42 C.F.R. § 447.205, W estlaw ( current through May 21,

2020). The public-notice and c om m ent period ran f or a m onth, f

rom D ecem

ber 18, 2014, to January 18, 2015. The public n otice provided that a copy o f the proposed S PA was available f or r eview in each county health-departm ent of f ice. Th e copies of the SPA that were available f

or review included the change to Methodist’s NBV adjustm ent. Methodist claim s, ho w e v e r , t h a t b ecause i t was expecting a s light i ncrease to its per diem rate and because changes im

plem ented i n the SPA were dif f icult t o discern f

rom one version of the State Plan

to i ts revised version, M e t h o d i s t did not f i nd out about the change in is property rate until March 9, 2015—well af

t er the public-notice and com m ent period had lapsed. ¶13. Af ter the period lapsed and the DOM received no com m e nts f rom the public on the

am endm ent, the DOM f

iled S PA 1 5-004 f

or approval with the f

ederal Centers f

or Medicare and Medicaid Services (CMS). ¶14. Methodi s t a p p e a l e d i t s r a t e on April 8, 2015, and the DOM a n d Methodist m et to discuss the change i n the adjustm e nt on M ay 19, 2015. At the m eeting M ethodist argued that this decreased adjustm ent rate was not based on construction costs, but t h e D O M w a s unconvinced by

its argum ents. On July 7 , 2015, the DOM n otif ied Methodist that because Methodist’s property -ra te calculation com plied with SPA 15-004 and because Methodist f ailed to com m ent on the am endm ent when it was placed f or public n o t i c e and opened f or

com m ents, Methodist’s appeal ha d b een denied. Upon receipt of the denial, Methodist renewed its m otion, and, o n July 23, 2015, the DOM agreed to c o n duct an adm inistrative hearing on the m atter.

7¶15. The a dm inistrative hearing was held on January 26 a nd 27, 2 016. On the second day

of the hearing, the DOM f iled S P A 1 6

- 0 011 f

or public c om m ent. The D OM testif ied that it intended f

or SPA 16-0011 t o clar i f

y t h a t the DOM originally intended f or a 175 percent

m ultiplier, r ather than the 175 p ercent add-on, to be used to calculate an NFSD’s NBV adjustm ent under SPA 15-004. I f approved, SPA 16-0011 was to ret r o a ctively take ef f ect on January

1, 2016. ¶16. At the hearing, the DOM explained its reasoning and basis f or the c h anges m ade to the State Plan by SPA 15-004 f or the rebasing of the standard NBV and f or the 175 percent

m ultiplier applied to NFSDs. Methodist argued that the DOM f a iled to a ppropriately publish notice of the changes i ncluded in SPA 15-004, and Methodist f urther argued that the property per diem rates m

ust be based on new construction costs. Methodist had an expert testif y that the a ctual cost of building an NFSD in 2015 w ould am ount t o $17,717,169, or $295,268 per

new bed. This estim ate included an approxim ate c ost f or acquiring the land u p on which Methodist currently s tands and a lready o wns. Methodist’s expert estim a ted that the cost to acquire the l and in 2015 would be $2,427,152 and based his approxim ation on recent sales of nearby parcels of land. The AHO n oted in hi s o p i n i on that the resulting increase in the estim ated actual NBV could be the result of the “extraordinary increase i n land acquisition costs.” If the g r eatly increased v alue o f the land that Methodist already owns, and theref ore would not have t o purchase again, were taken out of the estim ated actual c onstruction-cost equation, the e stim ated total a ctual cost to construct an NFS D i n 2 015 would am ount to $15,290,017, or $254,833.62 per bed.

8¶17. Following the hearing, the AHO issued his opinion and recom m endations on May 26,

2016. The AHO upheld the 1 75 percent NBV adjustm ent f o r NFSDs but held that the NBV adjustm ent f

or NFSDs should be calculated according to the f orm ula that had been im p lem e n t ed since the NFSDs f irst opened in Mississippi, by adding the s tandard NBV to 175 percent of the standard NBV. According to the AHO’s o p i n i o n , w h ich was later

a f f i r me d and adopted by the DOM a s the DOM’s f inal decision, Methodist’s NB V calculation f

or 2015 would be $91,200 + ($91,200 x 1.75), w hich would e qual $250,800 per

new bed i n 2015. The AHO’s NBV calculation puts Methodist’s adjusted NBV at an am ount slightly greater than 9 8 p ercent o f its estim ated actual cost to construct a new bed when the

cost of a c q u i r i n g t h e land that Methodist a l ready owns is taken out of the estim ated total construction costs. ¶18. According to Methodist’s own expert, the estim ated actual cost to construct an NFSD in 2015, i ncluding the c ost to acquire land which Methodist already o wns, brought the cost to construct a n e w f

acility to $295,286 per new b ed. The d issent points o ut that the AHO’s prescribed NBV—$250,800—am ounts to o nly 85 percent of the e stim ated actual cost to construct a new NFSD in 2015, including the cost to acquire the land M e t h o d i s t already

owns. But in 2 004, r ight af ter M ethodist and the DOM agreed that Methodist should receive

a 328.178 percent add-on adjustm ent to its NB V p r o p e r t y pay m ent, M ethodist’s adjusted NBV f or 2004 am ounted t o $139,050.81 and the actual cost to construct Methodist cam e to $169,108, m aking M e thodist adjusted NBV property -pay m e n t a m ount only 79 percent of Methodist’s actual construction costs.

9¶19. O n June 24, 2016, the DOM’s executive director af f irm ed and adopted the A H O ’ s opinion as the DOM’s f

inal decision on the m atter. Methodist is now appealing the DOM’s f inal decision, which s et Methodist’s NBV-adjustm en t c a l c ulation as the s tandard NBV added to 175 percent of the NBV. In accordance with the AHO’s opinion, the DOM’s f inal decision also held that SPA 15-004 had been properly published f or p ublic notice and that the DOM com

plied with House Bill 421 and House Bill 1275. ¶20. Although, the DOM’s f inal decision adjusted Methodist’s reim bursem ent f

o rm ula to

a rate m ore f

avorable f

or Methodist than what the DOM had originally intended with SPA 15-004, Methodist still f elt aggrieved because its NBV was still being adju s t e d by a percentage am ount less than what it had been bef ore the am e n dm e n t was enacted. 1 ¶21. Methodist tim ely appealed the DOM’s f inal decision to the Hinds County Chancery Court. The case w as brief ed in 2017, and a hearing w as held in J uly 2 017. On Decem ber 14, 2018, the c hancellor i ssued her order and opinion, which a f f i rm ed the DOM’s f

inal decision. Methodist tim e ly

appealed to this Court.

STANDARD OF REVIEW ¶22. “W hen reviewing a c hancellor’s ruling concerning an adm inistrative agency deci s i o n, this Court applies the s am e standard of review as the chancellor.” Crossgates R iver Oaks Hosp. v. Miss. D iv. of Medicaid , 240 So. 3d 385, 387 (Miss. 2018) ( citing M iss. Com m ’n

1 If M e t h o d i s t w e r e t o r e c e i v e i t s p r e a m e n d m e n t c a l c u lation and percentage-adjustm ent rate af ter the standard NBV was rebase d a s $91,200, then M ethodist would receive an adjusted NBV a m ounting to $390,498, which exceeds Methodist’s own expert’s estim ated actual cost of construction per bed by $95,212 per bed.

1 0on Envtl. Quality v . Chickasaw Cty. Bd. of S u p e r v i s o r s , 621 So. 2d 1211, 1216 (Miss. 1993)). “This court h as the authority to reverse the d e c i s i o n of DOM if we f i nd that i t (1)

was not supported by substantial ev i d e n c e , ( 2 ) is a rbitrary or capricious, (3) was bey ond DOM’s power to adopt, or (4) violates a constitutional o r statutory provision.” I d. (citing Town of Enterprise v. Miss. Pub. Serv. Com m ’ n , 782 So. 2d 733, 735 (Miss. 2001)). ¶23. A n a g e n c y ’s interpretation of a s tatute or an adm i nistr a t i v e r e g u l a t i o n o r r u l e g o v e r n i n g the agency ’ s operation is a m atter of law reviewed de novo , but the level of def erence the Court will af

f ord the agency ’s interpretation of the l aw depends on whether the agency i s interpreting a s t a t u t e o r its own a d m inistrative regulation or rule. King v. Miss. Military Dep’t , 245 S o . 3 d 4 04, 407 (Miss. 2018); see a lso Crossgates , 240 So. 3d at 388 (citing Sierra Club v. Miss. Envtl. Quality Perm it Bd. , 943 So. 2d 673, 678 (Miss. 2006)). The Court will a f

f ord no def

erence t o a n agency ’s interpretation of a statute governing the agency ’s operation. King , 245 So. 3d at 407–08. But, a n agency ’s interpretation of its own adm inistrative rules and regulations which govern the a gency ’s o perations will generally be af f orded great d ef

erence by the Court. Crossgate s , 2 4 0 So. 3 d at 3 87–88. The Court will

not u phold nor will i t a f

f ord a ny def

erence to an a g ency ’s interpretation of its own adm inistrative regulation or rule if the interpretation is so erroneous or i nconsistent with the underly ing rule or regulation as to m ake the agency ’s interpretation arbitrary , capricious or an abuse of

discretion. I

d. ¶24. The p arty c h a l l e n g i ng the decision o f the agency has the burden t o prove that the agency ’s d ecision should not be af f irm ed by the court because the agency ’s decision was not

1 1supported by substantial evidence, was arbitrary or capricious, was outside the s cope of the

agency ’s power or violated a s tatutory or constitutional right of the aggrieved party

. Ray v. Miss. Dep’t of Pub. Safety , 172 So. 3 d 182, 187 (Miss. 2015) ( citing Bd. of L aw Enf’t Officers Standards and Training v. Butler , 672 So. 2d 1196, 1199 (Miss. 1996); Montalvo v. Miss. State Bd. of Med. Licensure , 671 So. 2d 53, 56 (Miss. 1996)). ¶25. “Our cour t s a r e n o t p e r mi t ted to m ake a dm inistrative decisions and perf orm the f unctions of an adm inistrative agency . Adm inistrative agencies m ust perf orm the f unctions required of them b y law.” Pub. E m ps.’ Ret. Sys. v. H

oward , 9 05 So. 2d 1279, 1284 (Miss. 2005) (quoting M

iss. State Tax Com m ’n v. M i s s . - A l a . State Fair , 222 So. 2d 664, 665 (Miss. 1 969)). “[ T]he [ reviewing] court is not authorized to substitute i ts j udgm ent f or that

o f t h e [ agency ] where there is substantial (that i s, m ore than a scintilla of ) evid e n c e t o support the f

inding.” Ray , 1 7 2 S o . 3 d a t 1 87 (alterations in original) (internal quotation

m arks om itted) (quoting Montalvo , 671 So. 2d at 56). DISCUSSION ¶26. Methodist arg u e s t

hat the DOM erred by reaching a nd im plem enting its f

i nal decision 2

to change Methodist’s N BV adjustm ent to a 175 percent add-on. Methodist also argues that the DOM erred by violating state and f ederal laws of required notice f or proposed changes in agency rules and regulations and by f ailing to com

p ly with the directives o f H ouse Bill 421 and House Bill 1275.

2 T h e o p in i o n o f th e A H O w as af f irm ed an d ad o p t ed in t o t ality b y th e D O M a s t h e ag en cy ’ s f

i n a l d ecisio n o n th e m atter. M eth o d ist is ap p ealin g th e co n clu sio n s th at w ere reach ed b y

th e A H O in h is o p in io n an d th en later ad o p ted as th e D O M ’s f in al d ecisio n . 1 2I. Whether the DOM erred by a djusting Methodist’s NBV.

¶27. Methodist argues that the DOM’s adjustm ent o f M ethodist’s N B V w a s e r roneous because the adjustm ent was not based on new-construction costs or the f air-rental sy stem and because the DOM’s b asis f o r c h a n g ing the NBV was arbitrary and c apricious. Methodist asks that this Court hold that new-construction costs m ust be the basis f

or adjustm ents m ade to NBVs. A. Basis for Adjustm ent to Methodist’s NBV ¶28. Methodist argues that NBVs are based on w hat it w ould currently cost t o build a new f acility a nd that the 175 percent add-on adjustm ent to the standard NBV that it receives was not based on what it would cost t o build a n ew NFSD in 2015. Methodist a rgues that the DOM cam e up with the new 175 percent adjustm ent based on what it f elt would be a f

air and reasonable property rate f or Methodist or cam e up with this percentage based on Methodist’s reported c osts. But the AHO f ound that this 175 percent add-on wou ld f airly reim burse Methodist f

or what it would cost to construct an NFSD t oday

. A dditionally , the record provides that the DOM’s discovery that Methodist had n early recouped its e ntire initial in v e s t m ent f

or constructing the NFSD in just eleven y ears under the old a d justm ent rate coupled with th e D OM’s f ear that Methodist would r eceive a windf all f r om the rebased NBVs led the D OM to m ake one of its last f ew changes to the SPA. The dissent m istakenly claim s that the DOM’s logic asks why the DOM pay s Methodist, or any other f acility that has f ully recouped the cost o f building it, a ny am ount f o r a property p ay

m ent u nder the f

air-rental sy stem af t er the f acility has been com

p letely reim

bursed f or what it actually cost to construct

1 3the f

a cility

. But this is clearly not the DOM’s logic because Methodist has n early received the total am ount that i t c ost to construct it, and the DOM never s uggests ceasing Methodist’s property pay

m ents. The DOM m erely seeks to analy

ze the property -pay

m ent data that had been collected the past ten y ears f o r the state’s only N F SD to check that the N BV adjustm ent that was agreed upon by the DOM and Methodist in 2004, when Methodist f irst opened, is adequately

reim bursing the NFSD and to reevaluate the NBV adjustm ent rate if not. ¶29. The D O M e x plains that the Com m ittee used actual reported costs listed in recently issued C ONs to determ ine that the standard NBV o f a nursing f acility should be increased

t o $91,200. The DOM explained that the standard NBV is the starting p oint f o r e v e r y nursing f acility ’s f air-rental per diem

calculation, then im

provem ents are considered and a d e p r e c iation f

actor is applied. All of this i s done in an ef f o rt to reim

burse p roviders f

o r construction costs based u p on the age of the f

acility

. The age of the f

acility i s considered to provide an incentive f

or f acilities to continuously invest in and im prove their f

acilities. The dissent claim s that the DOM’s p osition ignores the f air-rental sy stem ’ s i ntention to prom ote renovations and im

provem ent to f

acilities, b ut this claim contra d i c t s t h e language that the dissent earlier quoted f

rom the DOM’s own argum ent, stating that the “ D O M calculated a rate which would continue t o com pensate Methodist and encourage it t o i nvest in and

m aintain its f

acility .” Diss. Op. ¶¶ 104, 109. ¶30. W e f

ind Methodist’ s c l a i m that a ll p ercentage-adjustm ent rates that are af f orded to certain categories of n ursing f acilities’ NBVs mu s t b e based on w hat it would cost to

c o n s truct a new f

acility of that ty

pe today to be w ithout m erit. Methodist has cited n o

1 4relevant a

u thority to support that contention. W hile it is clear that N BVs are b ased on what it would cost to construct a nursing f acility today , no authority has been cited that m andates that the additional p e rcentage a d justm ents that NFSDs, ICF/IIDs, PRTFs or A lzheim er’s units receive in their property -pay m ent calculations m

ust be based on construction costs. ¶31. Notwithstanding Methodist’s f ailure to cite authority to support its c l aim , we f ind that the D OM’s f

inal d ecision t o c alculate Methodist’s NBV adjustm ent w ith a 175 percent addon was reached by

considering what it w ould c o st t o b uild a new NFSD today . Theref ore, Methodist’s argum ent that its new NBV-adjustm ent rate w as reached in error b ecause it was not based on new-construction costs is m oot. Any error the DOM m ay h ave originally m ade in determ ining Methodist’s N BV adjustm ent in SPA 15- 0 0 4 was ultim ately harm less because, as the A HO e xplained in his o p i n i o n , t h e 175 percent add-on would reasonably

com pensate Methodist f

or what Methodist’s own expert estim a ted it w ould cost to construct

an NFSD today

. T he A HO’s r easoned analy s is f or why the 175 percent add-on reasonably

com pensates Methodist f

or what it would cost to construct a new NFSD in 2 015 was adopted by the DOM as i t s f

i n a l decision. Theref

ore, the D OM’s f

inal decision reasoned that Methodist’s new-construction costs would be m et by adjusting Methodist’s NBV with a 175 percent add-on.

B. Were the DOM’s actions arbitra ry and capricious? ¶32. Methodist argues that the DOM a c t e d a r b i t r a r i l y and capriciously by singling out Methodist f

or a r eduction of its adjustm ent rate, by f ailing to apply a r

ule of general applicability to Methodist in a consistent m a n ner a nd by f ailing to articulate a r e a s on f or

1 5deviating f

rom its prior norm s and decisions. ¶33. “An adm inistrative agency ’s decision is ‘arbitrary ’ when it is not done a ccording to

reason or judgm ent, but depending on the w ill alone.” P ub. Em p s.’ Ret. Sys. v. Marquez , 774 So. 2d 421, 429 (Miss. 2000) (citing Burks v. Am ite Cty. Sch. Dist. , 708 So. 2d 1366, 1370 (Miss. 1998); McGowan v. Miss. State Oil & Gas Bd. , 604 S o . 2 d 3 1 2, 322 (Miss. 1992)). This Court has also stated that an act of an adm inistrative agency “is ‘capricious’ if it is done without reason, in a whim sical m anner, im ply ing either a lack of understanding of

or a disregard f

or the surround f

act and settled controlling principles.” Id. at 429–30 (citing Burks , 708 So. 2d at 1370; M c Gowan , 604 So. 2d at 322). ¶34. “[ A]n agency m

u st either conf

orm t o i ts p rior norm s a n d d e c i s i o n o r e x plain the

reason f o r its d eparture f

rom such precedent.” Miss. Methodist Hosp. and Rehab. Ctr., Inc.

v. Miss. Div. of Medicaid , 21 So. 3d 600, 609 (Miss. 2 009) (internal quotat i on m arks

om itted) (quoting Miss. V alley Gas Co. v. Fed. Energy Reg. Com m ’ n , 659 F. 2 d 488, 506 (5th Cir. 1981)), abrogated on other grounds by K ing , 245 So. 3d 404. ¶35. Methodist argues that the D OM’s explanation f or such a departure f

rom its previous

norm s or decisions m

ust be m o re than a m e re placeholder a n d that “an agency c hanging its

course m ust supply a reasoned analy sis indicating that p rior policies and standards are being deliberately changed, n ot casually ignored

. . . .” Greater Boston Television Corp. v. FCC , 444 F.2d 841, 852 (D.C. Cir. 1971). Here, the DOM com plied with both. ¶36. The D OM a cted in a c c o r d a n c e w i t h i t s p r e vious norm s and d ecisions by basing Methodist’s NBV-adjustm ent rate on what it would cost to construct an N FSD today

. The

1 6DOM’s only departure f r o m i t s p revious p ractices relevant here was the change in Methodist’s NBV-adjustm ent percentage am ount. The DOM’s f inal decision adopting the AHO’s opinion provided a well-reasoned analy sis f or why i t was necessary to depart f rom the 328.178 percent add-on adjustm ent and m ove t o a 175 percent add-on f or M ethodist. The DOM explained that if i t were to conf orm with the 328.178 percent add-on af ter the standard NBV was drastically increased, then the DOM would be overpay ing Methodist f or what it would cost to construct t h e f a cility by nearly $ 100,000 per bed. The AHO’s opinion also

notes that because M e thodist is the only NFSD i n the state, the ef f ort to establish a NBV is

com plicated by the f

a ct that there are f

ew such com

parable f acilities in the country

. ¶37. Methodist also asserts that the DOM’s actions w ere arbitrary and capricious because it f ailed t o a p p l y a rule of general applicability

. M ethodist argues that the rule of general applicability here is that the f air-rental value be based o n the cost to c onstruct a new f acility in the present day

. Again, Methodist’s argum ent is without m erit because its adjusted fairrental value was, in f

act, based on what it would reasonably cost to construct a new NFSD in the present day , as explained in the DOM’s f inal decision. ¶38. Af ter reviewing the record, w e f ind that th e D O M ’ s f

i n a l d e c i s i o n t o c h a n ge Methodist’s adjustm ent rate to a 175 percent add-on was supported by s ubstantial evidence and was not arbitrary

or capricious C. Correct Basis for NBV s ¶39. Methodist asks that this Court hold that NBV adjustm ents m ust be based upon new construction costs, arguin g t h a t the AHO’s f orm ula w as not supported by s u bstantial

1 7evidence and that the DOM’s a f f irm ation and adoption of the AHO’s opinion as the DOM’s f inal decision was m ere pretense. ¶40. This Court is not a llowed to do the job of a d mi n i s t r a t i v e a g e n c i es and cannot substitute its o wn o p inion in p lace of an a genc y d e c i s i o n . Ray , 1 72 So. 3d at 187. Accordingly , we ref

use to dicta t e how the DOM bases adjustm ents to NBVs absent any sh o w i n g that such a rule exists or that the DOM h as f ailed t o act in a ccordance w ith such rule. ¶41. Methodist f

urther argues that the DOM’s adoption of the AHO’s opinion as its f inal decision on the m atter was m ere pret e n s e b ecause the DOM f iled another SPA f

or public notice and com m ent that attem p ted to c l a r i f

y w hether the 175 percent adjustm ent f or Methodist was a m

u ltiplier or an ad d

- on. The am endm ent to which M ethodist is ref erring

was to t ake ef

f ect January 1, 2016, but the DOM af f irm ed and a dopted the AHO’s opinion

on June 24, 2016. The f

act that the AHO’s opinion becam e the DOM’s f inal decision on the

m atter w ell af

ter the clarif

y ing am endm ent took e f

f ect weighs h eavily a gainst a f inding that the DOM’s a f

f irm ation and adoption of the AHO’s opinion w as m ere pretense. T he DOM’s af f irm ation and adoption of AHO’s opinion as the DOM’s f inal decision o n the m atter was clearly m eant to overrule any preexisting rules or decisions on the m atter. Theref ore, we f ind Methodist’s contention to be without m erit. II. Whether the DOM violated state and federal law s requiring notice. ¶42. Methodist argues that the DOM f ailed to com

ply with 42 C.F.R. § 447.205, the f ederal

r e gulation requiring that state Medicaid agencies “provide public notice of any signif ic a n t

1 8proposed change in its m ethod s a nd standards f or setting pay

m ent rates f

or services.” 42 C.F.R. § 447.205(a), W estlaw (current throug h M a y 2 1 , 2 020). Methodist claim s that the DOM also f

ailed to c om

ply with several state l aws requi r i n g public notice of an agency ’s proposed rule changes.

A. Federal Law Requiring Public Notice ¶43. If a state chooses to p articipate in the Medicaid program , it m ust subm it a State Plan

to CMS that satisf

ies the substantive requirem e nts of 42 U.S.C. § 1396a (a)(13)(A) (2012), and the procedural requirem ents set f orth in 42 C.F.R. § 447.200, W estlaw (current through May 21, 2020). Any later changes in the pay m ent rates established in the S tate Plan require the state Medicaid agency to subm i t p r o p o s e d plan am endm ents to CMS f o r approval. 42 C.F.R. § 4 47.205 requires a state a g e n cy “provide public notice of a s ignif icant proposed change i n its m ethods and standards f or setting pay

m ent rates f

or services.” 42 C.F.R. § 447.205, W estlaw (current through May 21, 2020). Subsection (c) of the regulation outlines the content requirem ents of the pub l i c n otice, s tating that the notice m ust include a description of the proposed change i n m ethods and standards, esti ma t e s of any expected increase o r decrease in a nnual aggregate expenditures and an e x planation f o r why the agency is changing its m ethods and standards. 42 C.F.R. § 447

. 2 0 5 ( c ) , W estlaw (current through May 2 1, 2020). ¶44. Here, the DOM’s p u blished notice gave a detailed descri p t i o n o f s e v e r a l o f t h e proposed changes that the SPA 1 5 -004 would im plem ent, stated that the “estim ated annual aggregate expenditure of the [ DOM] are expected to be b udget neutral” and e xplained that

1 9the DOM was “ im plem enting these changes to nursing f a cility reim

bursem e nt as authorized by Miss. Code Ann. Section 43-13-117.” ¶45. “As their nam e suggests . . . ‘notice’ provisions are neither invariably n or prim arily designed t o af

f ord exhaustive disclosure, but to alert interested parties that their s u bstantive rights m ay be a f

f ected i n a f

orthcom ing public proceeding.” V isiting Nurse Ass’n of N. Shore, Inc. v. Bullen , 93 F.3d 9 9 7, 1010 (1st Cir. 1996), abrogated on o ther grounds by L o n g T erm Care Pharm a cy A lliance v. Ferguson , 362 F.3d 50 (1st Cir. 2004). “Notice provisions require only that the agency ‘outline[ ] the substance of the plan i n s uf f icient detail

to allow interested parties to decide how and whether to seek m o re inf orm ation on the plan’s particular aspects. The agency was not required to publish every m inute d etail of the plan.’” Id , (quoting Miss. Hosp. Ass’n v. Heckler , 701 F.2d 511, 520 (5th Cir. 1983)). ¶46. Methodist relies on a case f rom the U nited States Court of Appeals f o r t h e F o u r th Circuit t o argue that an agency ’s f a iling to provide p ublic notice of an am e ndm e nt proposing

s i g n i fi c a n t c h anges to the agency ’s m ethods and standards renders the am endm ent i n e ffe c t i v e until p roper public notice is published. N.C. Dep’t of Hum an Res. v. U.S. Dep’t o f Health & Hum an Servs. , 999 F.2d 767, 768 (4th Cir. 1993). In that case, however, the portion of the SPA at issue proposed a retroactive ef f ective date. The Health C a r e F inancial Adm inistration (HCFA) A dm inistrator approved the substance of North Carolina’s SPA but denied the portion that specif ied the retroactive ef

f ective date, reasoning that the signif icant change t o the agency ’s m ethods and standards c o u l d not becom e ef f ective retroactively because i t would be i m

possible to give public notice b e f o r e the r etroactive ef

f e ctive date.

2 0Id. Theref

ore, any SPA proposing a retroactive ef f e ctive date cannot be in c om pliance with 42 C.F.R. § 447.253(h), W estlaw (current through May 21, 2020), which requires that the

state Medicaid a gency provide CMS with assurances that it has c om plied with t h e publicnotice requirem ents of

42 C.F.R § 447.205 bef

o re CMS will approve the plan change. Id. ¶47. Here, the AHO det e r mi n e d t h a t “ M e t h o dist was aware that a general i ncrease of NBVs w as im m i nent and that c hanges to i ts adjustm ent percentage were being considered.” The AHO f

urther f o und that the publication o f the n otice was proper and that the notice set f orth a com m ent period but that no com m ents were received. ¶48. Methodist argues that the AHO’s claim th a t M e t h o d i s t k n ew that changes to its percentage were being considered was pure f abrication. Although the AHO does not cite

s p e c i f ic e vidence f

rom the r ecord to support his f inding, it i s evident f

rom the record tha t Methodist had actual knowledge that som e change to their adjusted NBV was im m inent. A Methodist em

ploy ee testif

ied at the adm inistrative hearing a nd stated that he h ad participated in the webinars and had seen that Methodist’s proposed NBV was $299,298 f or 2 015. At this

m om ent, Methodist either knew or should have known that the m anner in which Methodist’s NBV adjustm ent w as calculated was going to change under S PA 15-004. Methodist knew that under SPA 15-004, the standard NBV would be rebased to $91,200, and according to the sim ulation l e t t e rs and the D OM’s training webinars, Methodist k new its expected NBV

w o u ld be $ 299,298. A t the adm inistrative hearing, a reim bursem ent consultant f

or M etho d i s t testif i ed that Methodist’s expected NBV, $299,298, was consistent with the 328.178 percent add-on that had b een u sed to calculated M ethodists adjusted NBV since 2004. This was not

2 1true though. If Methodist h ad done the m ath, it w ould have realized that 328.128 percent of

$91,200 is $ 299,298 a nd that SPA 15-004 was proposing to change Methodist’s NBV adjustm ent calculation to a 328.178 percent m ult i p l ier rather than the 328.178 percent add-on that Methodist had received in past y ears. M ethodist’s s im ulation letter f

rom the DOM calculated Methodist’s N BV adjus t me n t w i t h a 3 28.178 percent m ultiplier, i nstead of a 328.178 add-on as well. Af t er receiving this notice, Methodist f ailed to raise an i ssue with this c hange, but now Methodist insists that i t is still entitled t o a 328.178 p e r cent add-on adjustm ent f

or its NBV. ¶49. T h e DOM’s publication of notice included a ll o f the inf orm ation it was r e q u i r e d t o address according to 42 C .F.R. § 4 47.205, including inf orm ation about where a copy of the SPA could b e f

o und to review the entire docum ent. Pursuant to CMS’s requirem en t s , the DOM published the proposed SPA 15-004 o n i ts website, which w as accessible by all Medicaid providers. And, as the published notice stated, the DOM provided a c opy of the SPA to each satellite Health Departm ent location in all eighty -two counties. T h ese copies of the SPA, which were avai l a b le to the public f or review, included the c hange to Methodist’s NBV adjustm ent to 175 percent. ¶50. A f t e r r e v i e w i n g t h e record, w e f ind that the DOM com

plied with f

ederal law s requiring notice of

proposed changes to the State Plan. B. State Laws Requiring Public Notice ¶51. M e t h o d i s t a r g u e s t hat the DOM violated state laws that require public notice o f proposed c h a n g e s to state agency rules, w hich are to be published through the Mississippi

2 2Secretary

of State’s of

f ice in the adm inistrative bulletin. ¶52. “The [ DOM] i s an ag e n c y a s d e f ined u nder Section 25-43-3 and, theref ore, m ust

com ply in all respects with the Adm inistrative Procedures Law, Section 25-4 3

- 1 e t s e q .” Miss. Code Ann. § 43-13-137 (Rev. 2015). “ A t lease twenty -f i ve (25) day s b ef

ore the adoption of a r

ule a n agency shall c ause notice of its contem plated action to be properly f iled with the S ecretary of State f or publication i n the adm inistrative bulletin.” Miss. Code Ann. § 25-43-3.103(1) (Rev. 2018). The Mississippi Code f u rther provides, The Secretary o f State retains the authority to reje c t proposed and n ewly adopted rules not properly f iled i n accordance w ith the Secretary of S tate’s rules prescribing the num bering s y stem , f

orm , sty le or transm i tting f orm at f or such f ilings. The Secretary of Sta t e s h a ll n ot be em powered to reject f

ilings f or reasons of the s ubstance or content or any proposed or newly adopted r ule. The Secretary of State shall notif y the agency of its rejection o f a proposed or newly a d o p t ed rule as expeditiously as possible and accom pany such notif ication with a stated reason f o r t h e r e jection. A rejected f

iling o f a proposed or newly adopted rule does n ot c o nstitute f iling pursuant to Section 25-43-3.101 et seq. of this chapter. Miss. C ode Ann. § 25-43-2.101(4) (Rev. 2018). “A rule adopted af ter July 1, 2005 is invalid unless adopted in substantial com pliance with the provision of Sections 2 5-43-3.102 through 25-43-3.110.” Miss. Code Ann. § 25-43-3.111(1) (Rev. 2018). ¶53. Although Methodist c orrectly argues that the DOM is a n agency subject to the sam e requirem ents o f other s t ate agencies and i s required to substantially c o mp l y with notice requirem ents f

or newly adopted or proposed r ules, the DOM argues that the State Plan is not

a “rule” of the agency but rather a contract between th e M e d i c aid of f i ce a nd the f

ederal governm ent that delineates how the state agency will appropriate the f unding it receives f

rom the f ederal governm ent.

2 3¶54. The Centers f or Medicare and Medicaid Service s ( C M S ) i s t h e f e d e r a l agency responsible f

or e nsuring that state Medicare a nd Medicaid a gencies com ply w ith f ederal law and the f ederal agency ’s requirem ents f o r receiving f

unding. CMS describes the contractual nature of state plans on its website, stating, A Medicaid and CHIP s tate plan i s an agreem ent between a stat e a nd the Federal g overnm ent describing how that s tate adm i niste r s i ts Medicaid and CHIP program s. It gives an assurance that a state will abide by Federal rules and m ay claim Federal m atching f unds f or its progra m a c t ivities. The state plan sets out groups of individuals to be covered, services to b e p r ovided, m ethodologies f

o r providers to be reim

bursed and the adm inistrative activities that are underway

in the state. W h en a state is pla n n i n g t o m ake a change to its program policies or operational a

pproach, states send state plan am endm ents (SPAs) to the Centers f or Medicare & M edicaid Services (CMS) f or review and approval. States also sub mi t S P A s to request perm issible program changes, m ake corrections, or update their Medicaid or CHIP state plan with new inf orm ation. h t t p s : / / w w w . me d i c a i d

. g o v / me d i c a i d / me d i c a i d

- s t a t e - p l a n - a me n d me n t s / i n d e x . h t ml ( l a s t visited Apr. 14, 2020). ¶55. The DOM of

f e rs f urther support f

or i ts a r gum ent that the State P lan is not a rule and theref ore is not s ubject to the public-notice requirem ents of the Mississippi Adm inistrative Procedures A ct (APA) b y citing a case in which the Louisiana Suprem e Court h eld that “the State Plan is not a r

ule under the [ Louisiana Adm inistrative Procedures A ct].” Wom en’s and Children’s Hosp. v. Dep’t of Health and Hosps. , 2 So. 3d 397, 407 (La. 2009). ¶56. W e f

ind CMS’s description of SPAs to be controlling here. W hen CMS’s description of S PAs is coupled with the h i ghly persuasive language f rom the Louisiana Suprem e Court,

we a gree that the DOM’s S t a te Plan is n ot a r ule that m

ust c om ply with the notice

2 4requirem ents of the Mississippi APA. III. Whether the D OM acted c ontrary to requirem ents set by t he Legislature. ¶57. In 2012, the Legislature directed the DOM to develop a plan providing revisions to the current r eim bursem ent m ethodology f or nursing f

a cility services. . . . [ DOM] shall not im plem ent these plans, but shall subm it the p lans to the Public Health and W e lf are Com m ittee o f the S e n a t e a n d the M edicaid C om m ittee of the H ouse no later than October 15, 2012, including necessary legislative recom m endations. H.B. 421, Reg. Sess., 2012 Miss. Laws ch. 530, § 5. ¶58. Methodist argues that the DOM violated t h e l etter and s p irit of House Bill 421 and acted outside the scope of its legislatively derived authority b ecause the bill m andated that all proposals to revise the r eim bursem ent m ethodologies pertaining to nursing f acilities be subm itted to the legislature f or r eview and authorization b ef ore the DOM could im

plem ent them . W e f

i nd that the DOM com

plied with the legislature’s directives. ¶59. T h e D O M r e sponded t o House Bill 421 b y c r e a t i n g t h e N u r s i n g F a c i l i t y R e i m bursem ent M e thodology Revision Com m ittee to a ssist in d eveloping a revise d reim bursem ent m ethodology f or n ursing f

acilities. The DOM chose the option i t thought

m ost a ppropriate and presented it to the Legislature in a legislative report in which the DOM requested legisla tive authority to im plem ent changes to the current r eim bursem ent

m ethodology f

o r nur s i n g f

a c i lities and to revise several provisions of the State Plan, including provisions of

the f air-rental-value sy stem

. ¶60. W e f

ind that the DOM did not violate House Bill 421 or act bey ond the scope of its legislatively derived authority because t h e L e g i s l a t

u r e c learly lim ited the DOM to developing

2 5a plan f

or revisions but not the power to im plem ent them

. And the DOM’s legislative report clearly shows that the DOM never had any intention to im plem ent the recom m ended changes absent legislative approval. ¶61. “ [ A ] s t a t u t o r y c r e a tion[ ] m ay only exercise those p owers expressly gr a n t e d o r necessarily

im plied by the Legislature and .

. . such powers ‘m ust be f ound within the f

our

corners of the s t atute under which the agency operates.’” G reen v . C leary Water, Sewer & Fire Dist. , 910 So. 2d 1022, 1026 (Miss. 2005) (quoting Strong v. Bostick , 420 S o. 2d 1356, 1361 (Miss. 1982)). ¶62. Af ter receiving the DOM’s report and recom m endations f o r c hanges to the State Plan in J anuary 2014, the Legislature draf ted and passed House Bill 1275 during the 2014 Regular Session. House Bill 1275 authorized the DOM to “update the case-m ix pay m ent sy stem

resource utilization groupe r a n d c l a s s i fications and f

air rental reim

bursem ent sy stem .” W hen

exam ining the f

our c orners o f the statute, it is c lear that the legislature authorized the DOM
to update the f

air-rental

- r e i m

b u r s e m e n t s y s t e m w i t

h o u t i n cluding any restrictive or qualif y ing language. If the Legislature i ntended to lim it the DOM only t o enact changes pursuant to the legislative report, then the Legislature would explicitly stated so in House Bill 1275. CONCLUSION ¶63. Af ter review, we f

ind that the D OM’s f

i n a l d e c i s i o n w as supported b y substantial evidence, was not arbitrary or capricious, did not violate M ethodist’s constitu t i o n al or statutory rights and that the DOM was acting within its power in reaching and adopting its f inal d e c i s i o n . W e also f ind that the DOM’s f

inal decision to set M ethodist’s NBV

2 6adjustm ent at a 175 percent a dd-on depicts w hat it w ould reasonably cost t o construct a new

NFSD today

. ¶64. W e conclude that the DOM com plied w ith f

ederal requirem ents f

o r p roviding public notice of a proposed change in an agency ’s m ethods o r standards. W e f urther f ind that the State Plan is n ot a rule subject to publication requirem ents under the Mississippi Adm inistrative Procedures Act. ¶65. AFFIRMED. RANDOLPH, C .J., KITCHENS AND KING, P.JJ., COLEMAN, M AX WELL, BEAM AND ISHEE, J J., CONCUR. GRIFFIS, J., D ISSENTS WITH SEP A R A TE WRITTEN OPINION. GRIFFIS, JUSTICE, DISSENTING: ¶66. I respectf

ully dissent.

I. Standard of Review ¶67. In Beverly Enterprises v . Mississippi Division of Medicaid , 808 So. 2d 939, 943 (Miss. 2002), this Court exam ined the def i nitions of

“arbitrary ” and “capricious”:

In McGowan v

. Miss. State Oil & Gas B d. , 604 So. 2 d 312, 322 (Miss. 1992), this Court def

ined arbitrary

and capricious as f

ollows: “Arbitrary ” m eans f

ixed or d one capriciously or at pleasure. An act is arbitrary

when it is done without adequately determ ining principal; not done according to reason o r j udgm ent, but depending upon the will alone,—absolute in power, ty rannical, despotic, non-rational,—im ply i ng e i ther a l a c k o f u

n d erstanding of or a disregard f

or the f undam ental nature of

things.

2 7“Capricious” m eans f reakish, f ickle, or arb i t rary . An a ct is capricious when it is done without r e a s o n , in a whim sical m a nner, im

ply ing either a lack of understanding of or a disregard f

or the surrounding f

acts and settl ed controlling principles.

II. Whether the D ivision of Medicaid (DOM) erred in adjusting Methodist’s NBV

. ¶68. The Medicaid reim bursem ent i s c o m

plex c alculation based on a f o rm u la. The

m ethodology at issue here i s the com putation of the per diem rate f o r long-term nursing-care f acilities. It is set out a t chapter 3-4 of the 2015 State Plan. This per diem rate has six listed

com ponents, A through F, such as direct-care costs (like caregivers’ salaries), case m ix (the relative severity of residents’ conditions), etc. Her e , w e consider com ponent E o f the per diem rate—the property pay

m ent. ¶69. According to subsection E.1 of chapter 3-4, the property pay m ent “includes the f

air rental per diem and the property taxes and insurance per diem .” Here, we need not consider property taxes or insurance. Instead, we are f ocused on the “f

air rental per diem ,” which “is a rental pay

m ent based on the a ge of each f acility .” According to the S tate Plan, this “f air rental sy s tem establishes a f acilit y ’s value based on its age. T h e newer the f acility is aged, the greater its v alue.” The use of “the f air rental sy stem f

or prop e r t y costs” has been

m andated by

the Legislature since 1993. ¶70. In 2004, M ethodist built Mississippi’s f irst and only n ursing f

acility f or the severely disabled ( NFSD). Methodist’s o riginal construction c osts totaled $13,580,518, or $169,108 per bed.

2 8¶71. The D OM recognized that NFSDs generally incur higher c o s t s t han other nursing

f acilities. As a result, the DOM and Methodist a g reed that the DOM’s reim bursem e nt would

not be the sam e as other nursing f acilities. Instead, the DOM agreed to reim burse Methodist f o r such increased costs through a higher new-bed-value (NBV) calculati o n i n t h e reim bursem ent f

orm ula. The DOM agreed to adjust the NBV an d c o m puted Methodist’s NBV f actor the standard NBV plus 3 2 8

. 178 percent of that am ount (the pay m e nt add-on). In 2 0 0 4 , t h e D O M ’s calculation of the NBV plus the pay m ent add-on was a s f

ollows: $32,475 + ($32,475 × 3.2 8 1 7 8 ) = $ 139,050.81. Thus, i n 2004, the DOM’s valuation of Methodist’s NBV w as approxim ately $30,000 less t han actual cost

. In f

a ct, actual cost was not part of the DOM’s f

orm ula or the calculation. The f orm u la f or Methodist and any NFSD was based on “new bed value.” ¶72. According to the DOM, f rom 2004 through 2014 , t h e D O M paid Methodist $11,851,093 in property pay m ents. The DOM a r g ues that when com p ared to Methodist’s original construction costs, this m eans through property pay m ents alone, the D O M h ad alm ost f ully paid f

or Methodist’s building, equipm ent, land, and r enovation o f Methodist’s

current f acility bef

or e a me n d i n g the State Plan in 2015, “ a f act Methodist’s b rief attem pts to obscure.” ¶73. I disag r e e w i t h the m ajority and the D OM. I f ind, as I will explain later, that the DOM’s rationale f

or the c hange in Methodist’s pay m ent add-on f

rom 3 28.178 percent to 175 percent was arbitrary and capricious. It is not supported by the Stat e P l a n o r a n y other authority

. As the previous p aragraph indicates, the DOM’s reasons f or reducing the pay

m ent

2 9add-on was because the D OM thought Methodist had been paid e n o u g h or had received a

windf all in the DOM reim

b ursem e nts, neither of which i s a reasonable or a uthorized crit erion to reduce the pay

m e nt add-on f

a ctor. ¶74. My

conclusion is based on the f act that the DOM’s rationale t o m ake this change to the f o rm u la s o l e l y c onsidered actual-construction costs in com p arison to total actual pay m ents received. There is no basis f or this rationale. Medicaid does n ot reim burse based

on actual costs. If it did, in 2004, Methodist’s NBV would have been $169,108 per bed (the actual cost) and not $138,933.83 (the estim ated cost based on the NBV and the pay m ent addon of 328.178 percent. The DOM gave no consideration to the a c tual costs of renovations, im p rovem ents or other am ount s e x p ended by Methodist since 2004. I n f act, there is absolutely no authority f

or the DOM to consider total a c t u a l r e i mb u r sem ents paid. Here, Methodist was singled out. I n the applicable state-plan am endm ent (SPA), S PA 15-004, no other category or pro v i d e r was c ut or had their f orm u la reduced b ased o n total actual reim bursem ents paid. ¶75. Instead, the State P lan u ses the term “new bed value.” The State Plan def ines this a the “new construction value per bed.” N ew-bed value and new-construction value per bed requires that it is based on an estim ated am ount of current construction costs and inf lation. The f o r mula also includes depreciation, which will of f set the NBV c alculation. The State Plan sim p ly does not authorize the DOM to single out Methodist’s total p ay m ent history and say that i s enough. There is no dispute that the property com ponent of M et h o d i s t ’s reim bursem ent c alculation is based on the estim ate of n ew-bed value and new-construction

3 0value per bed, not a ctual pay m ent history

. This is m y dif f erence of opinion with the m ajority , and the m ajority does n ot cite authority f or the DOM t o c o nclud e that Methodist has been “paid enough.” At a m inim um , based on the legislative authority f o r these changes, this signif i c a n t change could h ave b e en a nd should h ave been vetted by the Nursing Facility Reim bursem ent Met hodology Revision Com m ittee (Com m ittee) or through an actual discussion with Methodist. ¶76. Theref

ore, I am of the o pinion that the DOM’s am e ndm en t t o Methodist’s NBV pay m ent add-on v a l ue was arbitrary and capricious. Methodist was held to a dif f erent standard, a nd there i s no support f or the DOM’s accusation of Methodist’s having been paid enough f or property

costs or receiving a windf all. ¶77. I will explain f

u rther.

A. The Hearing Officer’s Ruling ¶78. The hearing of

f icer rejected the DOM’s calculation of the NBV. Instead, the hearing of f icer ruled,

Under the old P lan language , a s of 2014, Methodist’s new b ed value was $226,737.37 (new bed value, $52,95 4 p lus 328.178%). Even though Methodist’s own n ew bed c ost estim ate i s $295,286, it is requesting a cost per bed valuation of

$390,498. Clearly, this is too high.

On th e o t her hand, DOM assigned Methodist a new b ed value of only $159,600, w hich is less than the cost o f building the f acility in 2004. Costs did not go down between 2004 and 2015. Clearly, this is too low.

Methodist was the only nursing hom e to receive a decrease in n ew bed v alue, and its decrease is substa n t i a l

. H o w ever, this d ecrease was the result of a 3 1m istake i n the calculation of the a djustm ent, as noted above. Using the proper

calculation under the new Plan (new b ed value, $91,200 plus 1 75%) provides a new bed cal c u l a t i o n of $250,800, w hich provides M ethodist an increase which reasonably represents the com petitive cost of c onstructing a new NFSD bed. (Em phasis added.) ¶79. The hearing of

f icer gave very little detailed rationale f or this decision. The hearing of f icer gave us no inf

o r m ation to base his c o nclusions of “too high” a nd “too low.” Unlike the DOM, however, the hearing o f f i c e r sim ply a p plied the N BV and the r evised pay m ent add-on, as the D OM h ad done since 2 004 in Methodist’s calculation. There is no doubt that the hearing of

f icer rejected the DOM’s calculation.

B. The DOM’s Rationale ¶80. The relevant change t o SPA-015 considers the calculation o f the NBV f or Methodist. ¶81. As discussed earlier, the DOM recognized that NFSDs generally incur hi g h e r costs than other nursing f

acilities. To c om

pensate Methodist, DOM agreed to adjust Methodist’s reim bursem ent f

o r mu l a by adding the 3 28.178 p ercent pay m e nt a dd-on. To calculate Methodist’s NBV, y ou start with the “New C onstruction Value” table in the S tate Plan. For

exam ple, in 2004, the s tandard nursing f ac i l i t y N B V was $32,475. Methodist’s NBV calculation f

or 2004 was: $32,475 + ($32,475 × 3.28178) = $139,050.81

. ¶82. Continuing this exam ple, Methodist’s NBV c alculation over t h e n ext s e veral y ears was approxim a tely

as f ollows:

2005 $36,617 + ($36,617 x 3.28178) = $156,785.94 3 22006 $38,174 + ($38,174 x 3.28178) = $163,452.67

2007 $40,759 + ($40,759 x 3.28178) = $174,521.07

2008 $47,552 + ($47,552 x 3.28178) = $203,607.20

2009 $52,622 + ($52,622 x 3.28178) = $225,315.83

2010 $50,999 + ($50,999 x 3.28178) = $218,366.50

2011 $50,700 + ($50,700 x 3.28178) = $217,086.25

2012 $52,954 + ($52,924 x 3.28178) = $226,638.92

The DOM agreed that this was the f orm ula used to calculate Methodist’s N BV portion of the reim bursem ent rate f

rom 2004 through 2015. 3 ¶83. The Legislature began the revision p rocess i n 2012. The Legislature s pecif ically directed Medicaid t o “develop a plan” f or various reim

bursem ent m ethodologies, including “a plan providing revisions t o the current reim bursem e nt m ethodology f or nursing f

acility services.” The L egislature also directed that the DOM “ shall not im plem ent these plans, but shall subm it the plans” to the Legislature f or its c om m ittees to re v i e w . Maj. Op. ¶¶ 9, 57 (em phasis added) (quoting H.B. 421, Reg. Sess., 2012 Miss. Laws ch. 530, § 5). ¶84. It is crucial that we recognize that these p lans and revisions w ere based on suggestions and recom m endations f

rom the Com m ittee. The Com m ittee included the “DOM personnel,

3 T h e 2 0 2 0 N B V f

o r a stan d ard n u r sin g f

acility is $ 1 0 2 ,9 2 7 , I n term ed iate C are F acilities f

o r In d iv id u als w ith In tellectu al D isab ilities (IC F -IID ) is $ 1 2 3 ,5 1 2 , P sy ch iatric R e sid en tial T reatm e n t F acilities (P R T F ) is $ 1 2 3 , 5 1 2 , an d N F S D is $ 1 8 0 ,1 2 2

. 3 3industry p eople and other concerned stakeholders.” Maj. Op. ¶ 9. “The Com m ittee reached

an agreem ent on a new reim bursem ent plan, and the D OM s ubm itted its proposed plan to the Legislature in January 2014.” Maj. Op. ¶ 9. ¶85. The r eport to the Legislature r ecom m ended an u pdate to the “Fair Rental Value calculation.” Am ong other r ecom m endations, t h e report suggested the v alue of a nursingf acility bed be increased to $91,200. The report did not recom m end any c hange to the addon or percentage adjustm ents the DOM applied to the NBV calculation f o r I CF/IIDs, PRTFs, Alzheim er’s units, or NFSDs (Methodist). ¶86. The DOM concedes that during the C om m ittee’s evaluation p rocess, Methodist was not specif ically e valuated f

o r an adjustm ent to its property rate because of i ts unique position as the only

NFSD in the state of

Mississippi. ¶87. The L egislature accepted t h i s r e port and passed House Bill 1275 i n 2014 session. House Bill 1275 authorized the DOM to “update the

. . . f air rental reim

bursem ent sy stem .” H.B. 1275, Reg. Sess., 2014 Miss. Laws ch. 488, § 1 (codif ied as am ended at M iss. Code Ann. § 43-13-117(A)(4)( d ) (Rev. 2015)). The Legislature a lso i nstructed the DOM to “develop a n d i m

p lem e nt a pay

m ent add-on to reim

burse nursing f

acilities f or ventilator dependent resident services.” Id. In this last sentence, the Legislature r ef erred to the “pay m ent add-on” f

or ventilators. The r eport did not suggest o r recom m end a n y change to the “pay m ent add-on f

or specialized nursing f

acilities.” I

d. ¶88. At this point in the Legislatively m andated revision review, neither the Legislature,

3 4the Com m ittee, nor the DOM considered or discussed any possible r evision to the NFSD

pay m ent add-on f

actor. ¶89. The DOM adm itted that i t “f irst exam ined the adjusted bed values o f specialized nursing f

acilities, including ICF/IIDs, PRTFs, Alzheim er’s units, and the NFSDs (Methodist)[ ,]” a

f t e r i t b e g a n draf

ting the changes. Maj. Op. ¶ 11. The DOM c ould have and should hav e considered this issue with the Com m ittee and m ade a recom m endation in the L egislative report. It did not. Despite this, it is clear that a t this point, Methodist had no reason to believe its NFSD pay m ent add-on f

actor would change. ¶90. In f

act, the D OM conf

irm ed to Methodist that there would be no c hange, i.e., decrease in its reim bursem ent rate. I n February 2014, the DOM sent a sim ulation letter to Methodist that explained how its reimb u r s e me nt would c hange if the m easures reported to the Legislature were e nacted. The letter stated that it p resented only “estim ates” but that it was

m eant to show the ef

f ect of the proposed changes. Me t h odist was inf orm e d that in

com parison to its property per diem rate of $ 57 under the current sy stem , it could expect a

new rate of approxim ately $69.86 under the new s y stem , which the letter correctly described

as a 22.56 percent increase. A gain, at this point, M eth o d i st had no reason to believe its NFSD pay

m ent add-on would change. ¶91. Fur ther, in Novem ber 2014, Medicaid provided online training sessions to help long-term -care providers, like Methodist, understand the proposed reim bursem ent changes. Richard Lef

oldt was a reim

bursem ent consultant f

o r Methodist, and he participated in these sessions. Lef

o ldt testif ied that there was no m ention of any change t o the existing 328.178

3 5percent pay m e nt a dd-on to Methodist’s NBV. Lef oldt testif ied about the training slides the DOM presented online. These slides indicated t h a t t h e general NBV w ould increase to $91,200. The slides also indicated that while that would be the new-bed value f or nursing hom es, $299,298 would b e used f or “NF – Severely d isabled,” i.e., f or Methodist. Finally , Lef oldt testif ied that this f

igure w as consistent with the 3 28.178 percent pay m ent add-on that had been used since 2004. Once a gain, at this point, Methodist had no reason to believe its NFSD pay

m ent add-on would change. ¶92. On Decem

ber 18, 2014, M edicaid published newspaper notices of the c hanges to its long-term -care reim

bursem ent m ethods—SPA 15-004. The published n otice announced the changes, including f

ive changes to the “Property Rate calculation.” These i ncluded the NBV increase t o $91,200. But the notice did not m ention a ny f urther change to the NBV specif ically f or Methodist or f

o r the NFSDs. Again, at this point, Methodist had no reason to believe its NFSD pay

m ent add-on would change. ¶93. In f

act, neither the hearing of f i c e r , t h e executive d irector, the chancellor, nor the

m ajority c an identif

y exactly when the SPA 15-004 f irst included the language that decreased Methodist’s pay

m ent add-on f

r om 328.178 percent to 175 percent. The m ajority determ ined that it was one of

the last c hanges to the SPA 15-004 bef ore it was subm itted f

or approval. Maj. Op. ¶ 11. 4

4 T h is f in d in g b y th e m a

j o rity c o n trad icts its co n clu sio n later in th e an aly sis o f th e n o tice issu e th at M eth o d ist eith er k n ew o r sh o u ld h av e k n o w n o f th e c h an g e. T h ere is n o ev id e n c e in th e reco rd th a t clearly in d icates w h e n t h e D O M ad v i sed M eth o d ist o f an y ch an g e in its N B V an d th e p ay m en t ad d -o n w h en th at w o u ld b e ch an g ed b y S P A 1 5 -0 0 4

. 3 6¶94. Instead, Methodist o f f ered the only evidence about when the DOM decided to m ake this change. The m etadata in the Microsof t W o r d docum ent of the p ublication of SPA 15-004 i ndicated that the DOM had changed SPA 15-004 to reduce Methodist’s NFSD pay m ent add-on f

rom 328.178 percent to 175 percent on the sam e day as publication of the notice. A DOM em

ploy e e m ade this change and reduced the N FSB pay m ent add-on f

rom 328.178 percent to 175 percent (under SPA 15-004, Methodist’s NBV w as $91,200 × 1.75). 5 ¶95. This revision w as not presented to, discussed w ith, or v etted by the C om m ittee or the Legislature. This r evision w as not provided to Methodist. In 2004, the DOM and Methodist worked together to set this pay m e nt add-on. B ased on the Legislature’s directions, the DOM clearly should have presented this proposed change to the Com m i ttee, the Legislature and, at least, Methodist. Furtherm ore, this change was contrary to the DOM’s sim ulation letter and the training slides. Actually , the sim ulation l etter and the training s lides told Methodist to expect a m o dest increase of $12 to its per diem

rate. ¶96. The q

uestion here is whether the DOM m ade this change in a n arbitrary and c apricious

m anner. As discussed a bove, the f

act that the DOM did not subm i t this change to the Com m i t t e e , the Legislature, o r M ethodist certainly creates a question as to the DOM’s rationale and intentions. As in 2004, it would have been easy f or the DOM to disclose this

5 T h e h earin g o f

f icer f o u n d th is w as a m i sread i n g b y M ed icaid o f i ts o w n p lan : th e sam e p ro v isio n th at called f o r “ad j u stm en t to th e n ew b ed v alu e ” f o r M e th o d ist also stated th at an “ad

j u stm en t to th e n e w b e d v alu e o f 3 7

. 2 0 % w ill b e m ad e f o r licen sed A lzh eim er’s u n its.” B ecau se th a t m ean t th e A lzh eim er’s u n its w o u ld receiv e a 3 7 .2 0 p ercen t ad d -o n to th e reg u lar n ew -b ed v alu e, it w as lik ew ise n ecessary t o read th e lan g u ag e to m ean an ad d -o n (n o t m u ltip lier) f

o r M eth o d ist. 3 7change and m eet with Methodi s t to discuss this proposed change. Methodist would have

been g iven an o pportunity to change the DOM’s decision. More im p o r t a n t l y , industry prof essionals would have been given an opportunity to c o m m ent on this ch a nge. This appears to be the clear intent of the Legislature. ¶97. I m ove to the DOM’s rationale f or the change. The DOM claim s that i t began draf ting the am endm ents to the State P lan in Novem b er and Decem

ber 2014. The draf

t am endm ents

were t o ref

l ect the recom m endations r e a c h ed by the Com m ittee and the report to the Legislature. But at this p o int, f or the f irst tim e, the D OM decide d t o l o ok at the new-bed values of the ICF/IID, PRTF, and NFSD categories of nursing f acilities. ¶98. W i th respect t o the NFSD category , the DOM b ecam e concerned t h a t a s a result of the rebased NBV o f $91,200, NFSDs (Methodist w a s t h e o n l y NFSD) would receive a windf all that was inconsistent with the legislative directives and goals of House Bill 421. Thus, the DOM reevaluated M e thodist’s m u ltiplier in a n attem

pt to determ ine what was systematically equitable t o all Medicaid providers under the legislative g oals presented to the DOM when the process began. ¶99. The DOM reviewed b o t h the ICF/IID and PRTF c a tegories and concluded that a $91,200 base n ew-bed value wou l d adequately com pensate these f

acilities. S ince the base new-bed value was b e ing raised f r om $52,954 to $91,200 f o r all f acilities, the DOM

am ended the State Plan to decrease the ICF/IID and PRTF m ultipliers f

rom 120 percent to 100 percent. But af

ter appeals, the ICF/IID and PRTFs pay m ent add-on were returned to 120 percent. 3 8¶100. Sim ilarly , the DOM evaluated what rate w ould fairly compensate a NFSD consistent with the com

p ensation rates received by all ty p e s of nursing f

acility providers. T he DOM ultim ately determ ined that a fair rental-reimbursement rate f or NFSD f

acilities (Methodist) would be achieved by utilizing a 175 percent m ultiplier, f

or a total adjusted n ew-bed value of $159,600 ($91,200 x 1.75%). ¶101. The DOM of

f ered the testim ony of its reim bursem e nt director, Michael Daschbach. He testif ied that the NBV pay

m ent add-on resulted in an excessive pay m ent to M ethodist and would be unf

a ir to other providers: Q. A n d i f w e pay them $67.89, which is what they ’ve asked f or, what is the am ount—the gross am ount that they would be paid? A. I ’ d h a ve to go back to this other sheet. T hey would be paid alm ost a m i llion and a half dollars f or their property

. Q. And is that m o re or less than they ’ve ever been paid bef ore? A. T h a t w o u l d be m

uch higher. That would be alm ost—it w o u l d b e a m i llion dollars above their costs annually

. Q. And d oes Medicaid regard that as a f air am ount f

o r a property

pay m ent f or Methodist? A. No. Q. And why

is that? A. B e c a u s e M e t h o d i s t i s t h e only f acility in their class that g ets t h e accelerated pay

m ent of 175 p ercent. This is m oney that would be spent in other areas. Medicaid is on a f inite b udget and we’ve responsible to the taxpay e rs o f M i s s i s s i ppi. W e can’t just give excess m oney in one area to the detrim e nt of

other areas. I m ean, that m oney can go across m u ltiple program s or other—y ou know, all kind s of dif f erent—y ou know, it’s not f

air to other f

acilities and i t’s not f

air t o other ty

pes of f acilities. ¶102. According to Daschbach, the DOM w anted to change M e t h o d i s t’s N BV pay

m ent add3 9on because it did not b elieve it was a f a ir am ount f

or a p roperty p ay

m ent. 6 So, he continued, we should consider what would be a “f air am o unt f

or a property pay

m e nt.” ¶103. Because Methodist w as the only f acility in this category , the DOM decided to use the historical data it had f

or Methodist. The DOM c l aim s that the rational to change the NBV pay m ent add-on to a 1 75 percent m ultiplier was supported by Methodist’s pay m ent history

. ¶104. According to the pay m ent history , the DOM decided that Methodist has already been hugely overcom

pensated f

o r its capital im

provem e nts. A f

ter the construction of Methodist’s NFSD was com pleted in 2 004, and a s the f acility provided servic e s t o M e d i c a i d p a t i e n t s throughout the y ears, the property r eim bursem ent m ethodology f

or this f acility w a s treated d if

f erently f rom the property reim bursem e nt f

orm ulas applied to o t h e r ty pes of nursing f

acilities. For exam ple, unlike the PRTF or IFC/IID f acilities, whi c h h a d t

h e i r r e i m bursem ent rates periodically adjusted, Methodist’s m ultiplier was never adjusted, and it rem ained at 328.178% f

rom 2004 through 2012. By com parison, ICF/IID and PRTF f acilities were com

p ensated prior to 2012 at a rate of 120% of the bed value m ultiplied by the total num

ber o f beds i n their f

acilities Alzheim er units were paid the base bed value of all of its beds, plus 3 7.20% o f the bed value f or each Alzheim er bed.

In part, the dif

f erent treatm ent of the p roperty reim bursem ent rate f

or NFSD f acilities was based on the recognition that it cost m ore f or NFSD f

acilities to house their patients. Thus, f rom 2004 until 2 0 1 2 , D OM c o ntinued to com pensate Methodist at this disproportionately h igh rate, in part because of its status as the only

nursing f acility f or the severely

disabled in the state.

6 I nterestingly , if we pause here to consider t h e n o t i c e r equirem ent, 42 C.F.R. § 447.205(a) and (c), W est l a w ( c urrent through May 21, 2020) required D OM t o “provide publi c n otice of any signif icant proposed change in i ts m ethods and standards f o r setting pay m ent rates f

o r s e r vices” and to “[ d]escribe the proposed change i n m ethods and standards,” “estim ate the increase or decrease expected in a nnual expenditures ( if any ),” and “[ e]xplain why the agency is changing its m ethods and standards

. . . .” As I w ill d iscuss in t h e n e x t s ection, the DOM did not provide such notice e ven though the DOM’s counsel conceded at the hearing that the change “ does drop their property rate. It drops it f rom $67 to roughly

$29. It’s a signif

icant drop. There’s no question about that.”

4 0Based on Methodist’s Cost Reports, the total cost of construc tion f or Methodist, together with additions through 2016, totaled $13,207,300. Based on the overages in the rate, Methodist w a s p a i d back $12,480,220.97 in property reim

bursem ent by Medicaid a lone by 2 015, assum ing only a 175% pay me n t f o r 2015. It would have been f ar m ore, $13,325,936.29, if Methodist’s suggested m

ultiplier of 428.128% had been used f or 2015.

Based on DOM’s calculations, f rom the tim e Methodist o p e ned in 2004 through 2015, Medicaid had a lready reim bursed Methodist in property pay m ents a l o n e m ore than the t otal o riginal costs of constructing the entire f acility

. This is based only on Medicaid reim bursem ents and does not include any private pay patients or Medicare reim b ursem ents. Thus, Methodist h as recouped alm o st the entire cost o f its f acility in a m ere 11 y e ars f rom the property portion of the per diem that Medicaid p a y s o n b e h alf of Medicaid benef iciaries.

Eleven y e ars i s a n unbelievably f ast return on investm ent as m ost depreciation tables are based on 30-40 y ears. Based on these h istorical num bers and in light of the Mississippi legislature’s directive to tighten the reim bu r s e ment m ethodologies f

or nursing f

acilities, DOM c o uld not justif y continuing to pay Methodist 428.128% of

the newly

adjusted base bed value of $91,200, since this would alm ost double Methodist’s p roperty pay m ent and allow Methodist to receive a windf

all that would have paid the total cost of i ts f a cility a second tim e in a m ere six y ears. T his is n ot what the property rate is intended to do. Accordingly , D OM calculated a rate which would c o n tinue to c om pensate Methodist a nd encourage it to invest in and m aintain its f acility , but would not continue to provide it an unearned windf a ll that the o ther nursing f acilities did not receive. T his i s consistent with the l eg islature’s rem oval o f the language that required that nursing f acilities f o r the severely d isabled be reim bursed as a separate category

of nursing f acility

. ¶105. Based on this inf

orm ation, it is clear that the DOM’s personnel decided that Methodist had been p aid enough. But this “paid enough” rationale i s n o t included in the State Plan. The State Plan f

orm ula to determ ine reim

b ursem ent, including SPA-015, is based on newconstruction costs and the fair-rental system , which includes a determ ination as to what is the value of the f

acility —the cost of c onstructing a n ew f acility , i.e., NBV. The S tate Plan

4 1reim

bursem ent f

orm u la does not support the signif i cant reduction to Methodist based on the DOM’s unilateral conclusion that Methodist has been paid enough. ¶106. The DOM presented no evidence t o support the c o st of new construction of an NFSD f acility

. Methodist of

f e red evidence of the current construction cost f or an NFSD f

acility

. W i lliam W are, a construction p rof essional, w a s i n v o l ved in the original construction of Methodist in 2004. He u sed industry -cost indexes to e stim ate that the 2015 construction cost would be $17,717,76 9

. W a r e ’ s testim ony supported an a c tual NBV of $295,286 f or Methodist. T he D OM’s r evised calculation of NBV was $91,200 x 1.75 = $159,600. Thus, the D OM’s revised calculation, b ased on its c o nclusion that Methodist had been p aid enough,

was about half of the a c t u a l N B V f or Methodist or any other NFSD. Even the hearing of f icer’s NBV—the 175 percent pay m ent add-on to $ 91,2 0 0 + ( $ 9 1,200 x 1.75) = $250,800—would be an am ount that is 85 percent of the actual NBV. 7 ¶107. There is no a

uthority f or t h e DOM’s decision to use pay m ent history and historical construction c osts to determ ine th e N B V

- r e im bursem ent calculation. In f act, the DOM’s rationale f

or the reduction i n the pay m ent add-on i s because Methodist has b een reim bursed

mo s t or all of i ts initial building costs incurred in 2004. The DOM’s rationale did n o t consider the cost of

building a new f

acility . If this were a m aterial consideration, it would (or should) be written into t h e S t a t e P lan, f or all f acilities, e.g., reduce p roperty rate af ter startup costs, purchase costs, o r construction c osts are paid in f u l l

. W hether the am ount of

7 T h i s is th e in f

o r m atio n th at th e C o m m ittee th at co n sists o f in d u stry p r o f essio n als co u ld h av e co n sid ered

. 4 2historical reim bursem ents cover the actual f acility costs i s not a consideration in Medicaid reim bursem ent. ¶108. The DOM did not of f er any evidence that this pay m ent history versus actual f acility

costs was used to calculate the reim bursem ent rate t o any other nursing f acility in this state. The D OM did not use this rationale to deny the ICF/IDDs its 120 percent m ultiplier. Rather, that m ultiplier was restored. ¶109. The DOM’s position ignores that the f orm ula f or f air-re n t a l v a l u e is i ntended to prom ote r e n ovations and im provem ents to the Methodist f acility

. Methodist, through its reim bursem ent r ate, m

ust expend c apital to keep the f acility up-to-date and to prevent it f rom becom ing obsolete. Daschbach t estif ied that “ a renovation is b asically reducing the age of the f a cility , a nd f

air rental value is based on the age of the f acility

. The newer the f

acility , the higher y our property rate’s g o i n g t o be because y our f acility is worth m ore m oney .” The DOM’s reim

bursem ent rate to the state’s only N S FD is intended to provide suf f i cient capital f or Methodist to renovate and upgrade its f acil i t i e s t o r em a i n a state-of

- the-art nursing f acility f or the severely disabled, a nd it can provide l ong-term care f or som e of M ississippi’s

m ost vulnerable people: the victim s of head and spine i njuries, patients perm anently attached

to ventilators, quadriplegics, and others who require total and m axim u m assistance with m ost activities of

daily living. ¶110. The DOM’s logic is as f ollows: w hy pay Methodist (or any other f acility that has f

ully collected what its f

a cility c ost to b uild) any

thing less than the property p ay m ent? That is not how the f air-rental-value sy stem is m eant to work. The term “Fair Rental Value” (FRV) is 4 3a calculation that com pensates f acilities f o r the use of the buildings, grounds, and equipm ent needed t o care f

or Medicaid residents, explaining why the term s “f a ir” and “rental” are used. For exam ple, if y ou have a building that i s p aid f or and y ou decide to rent the b uilding, y ou would set the f

air-rental value, or the am ount of rent, at an am ount that a reasonable lessee

was ready , willing, a nd able to pay to lease the b uilding. To establish the rent am ount, y ou could u s e the c urrent construction costs to b uild a sim ilar bui l d i ng. You could use

c o mp a r a t i v e s a l es in the com m unity to decide what a b uy er m ay be willing to pay . Your could also use c o mp a r a t i v e rentals in the com m unity to see what others were pay ing f o r a sim ilar building. Th e m e r e f a c t t hat the building was paid f or and y ou had covered actual construction o r purchase costs f rom m any y ears ago would not be a f actor used to establish the f air-rental value. ¶111. The m ajority accepts the DOM’s conclusion that Methodist received a “ windf al l” f rom these property pay

m ents. Y et no f

acts s upport that conclusion. The m a jority states that the DOM

m erely seeks to analy

ze the property -pay

m e nt data that had been collected the past ten y ears f

or the state’s only NFSD to check that the NBV adjustm ent that was agreed upon by the DOM and Methodist in 20 0 4 , w h e n M e thodist f irst opened, is adequately reim bursing the N FSD and to r eevaluate the NBV adjustm ent rate if

not. Maj. Op. ¶ 28. The DOM and the m ajority r ecognize that this was based only on the “data that h ad been collected.” The actual and correct data would require Methodist to p rovide the DOM w ith it’s capital costs and expenditures on the f acility since 2004. To determ ine whether Methodist actually received a “windf all” or w as “adequately reim b ursed,” the DOM 4 4would have to use the correct “property data,” i.e., f inancial inf

orm ation f

rom Methodist that would show all costs of c onstruction, all costs of im p rovem ents, all costs of renovations, all

costs of additions, and all a m ounts that Methodist had invested in the f acility

. T he DOM’s decision w as arbitrary and c apricious because neither the m ajority nor the DOM consider the actual o r real “property data”; instead , the m ajority a nd the DOM only use the “ property data” that it chose to use, k n owing that such “property data” was not correct or up-to-date but

was available. The State Plan only authorized the consideration o f f air-rental value. If the DOM w anted to use a ctual “property data” then the DOM s h o u l d h a v e e ngaged in a discussion of

the change with Methodist and asked f or the actual “property

data.” ¶112. The St a t e Plan say s that the reim b ursem ent f

orm ula i s to be based on “new bed value”—the “new construction value per bed.” The S tate Plan does not authorize the DOM to consider Methodist’s pay m e nt history

versus actual construction costs. ¶113. Theref

o r e , I am of the opinion that the DOM’s a m endm ent to Methodist’s NBV pay me n t add-on v a lue was arbitrary and capricious. Methodist was held to a dif f erent standard, and there is no suppor t f o r t h e DOM’s accusation that Methodist i s gaining a “windf all.” Indeed, no evidence was presented to support the DOM’s claim that Methodist’s overall costs were being excessively reim b ursed. ¶114. This is exactly the ty pe of consideration that the Legislature instructed the DOM to undertake and to report back with its recom m e n datio n s. The DOM f a iled to allow the Com m i ttee to consider this issue. The DOM f a iled to n otif

y Methodist o f this consideration and give Methodist o r o t her industry prof essionals a n opportunity to present inf orm ation 4 5about this signif icant issue. There can be no doubt that t h e D O M ’s decision t o m ake this change, at the last m inute, under the cover o f darkness, and without advising the s t ate’s only NFSD of the proposed change cannot be allowed to stand.

III. Whether the DOM violated state and federal laws requiring notice.

A. Federal Law Requiring Public Notice ¶115. W h en a party asserts a lack-of -notice claim , the c ourt should f irst exam ine the notice that was required and then com pare it to the notice actually g iven.

1. Notice Required ¶116. The D OM was required to publis h n o t i c e o f the am endm ent t o the State Plan (SPA 15-004) und e r the r equirem ents of 42 C.F.R. § 4 47.205. U nder subsection (a), DOM was required to “provide public notice of any s i g nif icant proposed change in its m ethods and standards f

or setting pay

m e nt r ates f

or services.” 42 C.F.R. § 447.205(a). Under subsection (c), the notice m

ust “[ d]escribe the proposed c hange in m ethods and standards,” e stim ate the increase o r decrease expected in annual e xpenditures (if any ), and “[ e]xplain why the agency is changing its m e thods and standards . . . .” 42 C.F.R. § 447.205(c).

2. Notice Given. ¶117. There is no quotation or c ite to any portion of D O M’s published notice. The hearing of f icer ruled,

Methodist com

plai n s that it did n ot have adequate notice that its adjustm ent would be reduced. However, Methodist was aware that a general increase of

4 6n e w bed values was i m m inent and that changes to its adjustm ent percent a g e

were being c onsidered. Noti c e of the change was properly published. The Notice set f

orth a com m e nt period. (Exhibit 16) No com m ents were received. Methodist’s claim

that the change was not properly noticed is without m erit. The m ajority concludes that the notice was suf f i cient because “it is e vident f rom the record that Methodist had actual k nowledge that some change to their adjusted NBV was im m inent.

. . . M ethodist either knew or should have known that the manner in which Methodist’s NBV adjustment was calculated was going to change under SPA 15-004. ” Maj. Op. ¶ 48. This i s correct. Methodist did have knowledge it would change. As d iscussed above, the sim ulation letter advised Methodist that its reim bursem ent would increase by 22.56 percent. And, the sim

ulati o n l e t ter d id not indicate that there would be any c hange to the NBV pay m ent add-on. ¶118. The m ajority then rules that “[ t ]he DOM’s publi c a t i o n of notice included all of the inf orm ation it was required to address according to 42 C.F.R. § 447.205 . . . .” Maj. Op. ¶ 49. But SPA-015 does not m ention the reduction of Methodist’s NBV add-on. ¶119. The hearing of

f icer and the m ajority disregard the DOM’s obligation under 42 C.F.R. § 4 47.205(a) to “provide public notice of any signif i cant proposed change in its m ethods and standards f

or setting p ay

m ent rates f

o r services.” (Em

phasis added.) L i k e w i s e , they disregard the f

act that subsection (c) required the DOM to “[ d]escribe the p roposed change in m ethods and standards,” estim ate the increase or decrease expected in annual expenditures (if any ), and “[ e]xplain why the agency

is changing its m ethods and standards.” ¶120. The c hange in Methodist’s NBV c al c u lation that reduced the pay m ent add-on f

rom

4 7328.178 p erce nt to a 175 percent m ultiplier was signif

icant. In f

act, at the hearing, Medicaid’s counsel conceded that the change “does drop their property rate. It drops it f rom $67 to roughly

$29. It’s a signif

icant drop. There’s no question about that.” Despite this, the published notice did not gi v e a n y r e a son f or Methodist or any one else to expect a reduction in new-bed value f or the state’s only

NFSD. ¶121. If we consider what Methodist actually knew or s h ould have k nown, instead of what the DOM f

ailed to include in the actual notice, we m u st consider a dditional f

acts. Neither the hearing of

f icer, the chancellor, nor the m ajority cite a ny ev i d e n c e t o support the conclusion that Methodist had actual knowledge. ¶122. The C om m ittee me t a n d discussed possible d raf t p lans. S hane Hariel, a Certif ied Public A ccountant specializing in healthcare rei m b ursem e n t, attended the Com m ittee’s

m eetings on b ehalf of the Mississippi Health Care Association and chai r e d t h e c o st sub c o mmi t t e e , w hich f

o cused on the issue of the n ew-bed value. He testif ied that the subcom m ittee proposed to raise the new-bed value t o a realis t i c m arket a m ount and to

com pensate f o r this increase by lowering the rate of return on the n ew-bed value as well as reducing a f

actor s eparate f

rom the property pay

m ent (the “return on equity pay m ent”). He also testif ied that the disc u s s i o n w a s f ocused on conventional n ursing hom es and their construction costs f

or new beds, not on M ethodist’s specialized f acility , which Hariel did not recall having even been m e ntioned in that context. Hariel also testif ied that he did not recall that any one f

rom Medicaid ever discussed a change to the N B V p a y ment add-on f

or Methodist.

4 8¶123. There is sim ply no evidence to s upport the m ajority ’s conclusion that “[ n]otice of the change was properly published.” Neither the DOM, the hearing of f icer, the chancellor, nor the m ajority cites any evidence i n the record. Despite this lack of evidence, the chancellor’s order stated, “The published notice [ of Decem ber 14, 2014,] disclosed the 175% m ultiplier challenged by

Methodist in this appeal.” This is not correct. ¶124. Further, a s the m ajority r e c o gnizes the f a cts support the conclusion that the DOM decided to m ake this change j ust bef ore the am endm e n t was f iled. C e r t a inly , Methodist

cannot have actual or constructive notice of a ny change that the D OM decided to m ake just bef ore it was subm i tted. ¶125. I am of the opinion that the DOM f ailed to provide the prop e r p u b lic notice. I respectf ully dissent f rom the m ajority ’s conclusion that notice was adequate.

B. State Law Requiring Public Notice ¶126. Because the earlier sections indicate m y prim ary reasons to dissent, I do not believe it is necessary to address this issue. But I believe this issue presents a question that needs to be resolved. Is the DOM required to com ply w ith Mississippi’s Adm i nistrative Procedures Law? The m ajority

say s no; I say

y es. ¶127. The Legislature expressly declared the public policy of this State as t o Medicaid: “The division is an age n c y a s def ined u nder Section 25-43-3 and, theref ore, m ust com ply in all respects with the Adm inistrative Procedures L aw, Section 25-43-1 et seq.” Miss. Code. Ann. § 43-13-137 (Rev. 2015). Under Mississippi Code Section 25-43-3.103 (Rev. 2018), a state

4 9agency i s required to provide its p r oposed rule changes to the M ississippi Secretary of State’s

of f ice so that the public can be notif ied. The record r ef

lects that th e D O M d i d n o t f ile its proposed rule changes with the Secretary of State. ¶128. The DOM argues that t h e S t a t e Plan is not a “rule” under the Mississippi Adm inistrative P rocedures Act but is instead a contract between M ississippi and the f ederal governm en t

. S e ction 25-43-1.102(i) def ines a “rule” as “the whole or a part of an agency regulation or other state m e n t o f g e n e r al applicability that im plem ents, interprets or prescribes

. . . [ l ]aw or policy , or . . . [ t ] h e o r g a n i z a t ion, procedure or practice requirem ents of an agency .” M iss. Code A n n . § 25-43-1.102(i) ( Rev. 2018). The term “includes the

am endm ent, repeal or suspension of an existing rule.” Id. ¶129. The State Plan im

plem ents, interprets, and prescribes the law a nd p olicy o f Medicaid reim bursem ent to p roviders, and SPA 15-004 am ended the previous rule r e g a r d ing the calculation o f NBV f

o r M ethodist. Additionally , Section 2 5-43-1.102(i) has an e xception f or any “ com

p act or agreem ent between a n agency of this s tate and one or m ore a gencies of another state or states,” but i t does not include an exception f or an agreem e nt between a state agency and a f

ederal agency . Clearly the Legislature knows h ow to describe which agreem ents are or are not rules, a nd it d id not choose to def ine “rule” to include state-f ederal

com pacts. ¶130. Either the State Plan i s a r ule or is not. Recently , in Mississippi Division of Medicaid

v. W indsor Place Nursing Center, Inc. , I noted, “The m ajority f inds no s ignif

icance that the DOM determ i ned it was necessary to am e nd the State Plan and the Instructions. T he DOM 5 0followed the Administrative P rocedures Act and the am endm ents becam e ef f ective on May 12, 2009.” Miss. D iv. of Medicaid v. Windsor Place Nursing Ctr., Inc. , No. 2018-SA-01263-SCT, 2020 W L 2487330, at *10 ( M i s s . May 14, 2020) (Grif f is, J., dissenting) (em

phasis added). In that case, the DOM decided the am endm ents should be subm itted under the Adm inistrative Procedures Law. ¶131. Here, the record shows that while the DOM d eterm ined it was necessary to am end the State Plan, it did not f

o llow the Adm inistrative P rocedures Law. Accordingly , I respectf ully dissent f r om the m ajority ’s opinion and f ind t h a t t h e DOM f

ailed to g ive proper notice as required by

the Adm inistrative Procedures Law. ¶132. For these reasons, I respectf ully dissent.

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