Opinion ID: 1238142
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Heading: Percentile Cap

Text: Congress left to the individual states to determine what constitutes an efficiently operated facility. Congress gave the states a significant amount of flexibility so they could reduce the costs of administering Medicaid programs and encourage efficiency on the part of facility operators, while maintaining the secretary's final authority to disapprove state plans. Nebraska Health Care Ass'n, Inc. v. Dunning, 575 F. Supp. 176 (D.Neb. 1983). In 1981, the Idaho legislature amended Title 56 of the Idaho Code, adding provisions which included the prospective rate and payment mechanisms for the Medicaid Reimbursement Program provided by I.C. §§ 56-103 and 56-110. Idaho Code § 56-103 generally provides four different percentile caps depending on the range of nonproperty costs within each class. Idaho is not alone in implementing a reimbursement program utilizing a percentile cap, and other jurisdictions have upheld percentile caps. In Alabama Nursing Home Ass'n v. Harris, 617 F.2d 388 (5th Cir.1980), the Fifth Circuit Court of Appeals refused to strike down the use of reimbursement rates based on the sixtieth percentile. In Country Club Home, Inc. v. Harder, 228 Kan. 756, 620 P.2d 1140 (1980), reh'g denied, mod. 228 Kan. 802, 623 P.2d 505 (1981), the Kansas Supreme Court upheld a ceiling rate of the seventy-fifth percentile on the basis that it does not result in an unreasonable rate of reimbursement and is not contrary to the federal law and regulations. In Colorado Health Care v. Colorado Dep't of Social Servs., 842 F.2d 1158 (10th Cir.1988), the Tenth Circuit Court of Appeals held that an amendment of the state Medicaid plan which removed the incentive allowance and provided reimbursement limited by a ceiling did not disqualify the payment plan from federal compliance; and furthermore, that states are not required to reimburse providers for costs they actually or even reasonably incur. In Michigan and Mississippi participating long term care facilities are reimbursed their actual allowable costs up to the eightieth percentile of variable costs for all providers in the facility's class. See Mississippi Hosp. Ass'n, Inc. v. Heckler, 701 F.2d 511, 516 (5th Cir.1983); Coalition of Michigan Nursing Homes, Inc. v. Dempsey, 537 F. Supp. 451, 453 (E.D.Mich. 1982). Use of a percentile cap has been held to be an effective tool in promoting efficiency and economy in the Medicaid program of providing long term care to nursing home residents. One court has observed, Since the rates are prospective, every (long term care facility) has an opportunity to recover its full costs as long as it can bring them below the eighty percent ceiling established by looking at the previous year's cost reports and audits. Mississippi Hosp. Ass'n, Inc. v. Heckler, 701 F.2d 511, 517 (5th Cir.1983). It has also been held that state Medicaid agencies must make objective, principled decisions with regard to what rates are reasonable and adequate. Thomas v. Johnston, 557 F. Supp. 879, 914 (W.D.Tex. 1983). In light of the federal and state decisions addressing the validity of a percentile cap, we hold the use of the percentile cap as enacted in I.C. § 56-103 to determine reimbursement is in compliance and conformity with the controlling federal statutes and is valid.