Opinion ID: 1276583
Heading Depth: 1
Heading Rank: 3

Heading: General Medicaid Reimbursement Principles

Text: Because this case involves a rather unique area of the law, a brief overview of the relevant Medicaid reimbursement principles is helpful to understand the basis for the dispute in this action. The Medicaid Program, Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., provides for a system of medical care services for the poor which is subsidized by both State and Federal funds. Medicaid is administered at the Federal level by the Department of Health and Human Services through the Health Care Financing Administration, and at the State level by the Department. The furnishing of medical services under the Medicaid Program is accomplished by a direct payment from the Department to health-care facilities which act as providers of services to eligible recipients. Providers of long-term care, such as DNC, are reimbursed for services rendered to Medicaid patients in accordance with Chapter 75-02-06, N.D.A.C., [1] promulgated by the Department under the authority granted by § 50-24.1-04, N.D.C.C. State agencies administering Medicaid may not pay more in the aggregate for... long-term care facility services than the amount that would be paid for services under the Medicare principles of reimbursement ... [42 C.F.R. § 447.272(a) (1983) ]. [2] Thus the Department's payment-rate regulations are closely patterned after the corresponding principles governing reimbursement for long-term-care services rendered under Medicare, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., which provides for a system of federally subsidized health care services for the aged and disabled. The corresponding Medicare regulations are found at 42 C.F.R. § 405.401 et seq. Medicaid providers are reimbursed for the reasonable cost of providing health-care services to eligible recipients. See § 75-02-06-01(17), N.D.A.C. Among the reasonable costs reimbursable to long-term-care facilities are depreciation allowances for a health-care facility's buildings and equipment [§ 75-02-06-03, N.D.A.C.], and interest expenses on funds borrowed for the acquisition, operation, or maintenance of facilities and equipment [§ 75-02-06-04, N.D.A.C.]. [3] Generally, a provider claiming a depreciation allowance is not limited to the original cost basis of the facility's assets, but is allowed depreciation based on the historical costs of the assets. Historical costs are defined as those costs which are incurred by the present owner in acquiring and preparing the asset for use. § 75-02-06-03(5)(a), N.D.A.C. However, if the purchaser acquires the assets in a sale that is not bona fide, the purchaser is limited to the seller's cost basis. § 75-02-06-03(5)(c), N.D.A.C. Corresponding limits are also imposed on reimbursement for interest paid in connection with the acquisition of a provider's assets. See § 75-02-06-04, N.D.A.C.; see also 42 C.F.R. § 405.419(d) (1983). Section 75-02-06-07(1), N.D.A.C., consistent with 42 C.F.R. § 405.427 (1983), provides in pertinent part: XX-XX-XX-XX. RELATED ORGANIZATION. 1. Costs applicable to services, facilities, and supplies furnished to a provider by organizations related to the provider by common ownership or control shall not exceed the lower of the cost to the related organization or the price of comparable services, facilities, or supplies purchased elsewhere primarily in the local market.... The Department determined that § 75-02-06-07(1), N.D.A.C., applied in this case to limit DNC's depreciation costs and interest expenses to no more than the cost to the seller, thereby effectively disallowing DNC's claims relating to the acquisition of the facility by Nistler and Collier.