Opinion ID: 2566870
Heading Depth: 2
Heading Rank: 2

Heading: the superior court order

Text: ORDER Appellant Valley Hospital (Valley) appeals from a final, adverse administrative decision of the State of Alaska, Department of Health and Social Services (DHSS), denying Valley's fiscal year 2001 Medicaid rate appeal. DHSS established the rate in November 2000, based on data contained in a Medicaid cost report filed by Valley in June 2000. DHSS set the rate pursuant to a newly proposed rule, subsequently enacted effective December 30, 2000, as 7 AAC 43.685. Valley appealed the rate, and a DHSS hearing examiner recommended a grant of summary judgment against Valley. The Director adopted the proposed findings and conclusions, and Valley timely appealed to the Superior Court. The DHSS hearing examiner's opinion held, as a matter of law, that the administrative rule under which the rate was computed, 7 AAC 43.685, was not facially arbitrary or unreasonable, and that DHSS comported with the rule in setting Valley's rate. The examiner concluded, without citation to authority, that she lacked jurisdiction to adjudicate Valley's claim of inadequate notice that the rulemaking process would result in a post hoc adoption of a deadline that in practical effect precluded DHSS's consideration of up-to-date cost data, which would otherwise entitle Valley to a higher reimbursement rate. Valley's dilemma is as follows. Medicaid, as a payer of last resort, only reimburses Medicaid providers absent other sources of payment, such as insurance or liable third parties. At the time a patient is admitted to Valley, Medicaid eligibility may be unclear, and persons ultimately determined eligible may be initially logged in as Medicaid ineligible. Unfortunately, Valley's medical management computer software lacked the capacity to update or reconcile the admittance logs; thus, the logs tended to under-report the annual Medicaid patient days, and ancillary billings for patient services and supplies billable to Medicaid. Valley, for lack of current data, used its log data in its interim Medicare cost report filed in June 2000. Historically, this inaccuracy of the logs expressed in the interim cost report had no effect on the annual rate determination. This was because Valley provided DHSS its actual Medicaid eligible billings via an electronic billing procedure, on a routine basis. A DHSS computer periodically compiled these billings in a report termed the MR-O-14. This compilation accurately established the patient days and ancillary billings, and DHSS historically relied on that report, rather than the lesser sum reported in the interim cost report deriving from the inaccurate Valley logs, to set the reimbursement rate both for routine (room rate) and ancillary (procedures, supplies) rates. That changed in 2000. Valley filed its Medicare cost report in June 2000, utilizing log data rather than the more accurate MR-O-14 printout. It could not use the latter, because even though DHSS had produced the MR-O-14 at that time, it had not yet disseminated it to Valley. It did so July 17, 2000. In early September, 2000, Valley used the accurate MR-O-14 data in its Medicaid year-end report, filed with DHSS. In November of 2000, a DHSS employee preliminarily calculated the Valley Medicaid rate based on the accurate cost figures in the MR-O-14 report, arriving at a rate acceptable to Valley; but that outcome was shortly to change. One month after Valley's June 2000 cost filing, on July 17, 2000, DHSS promulgated a proposed rule change, under which its rate determination would endure for four, rather than one, years. During the rulemaking process, the proposal evolved in a manner detrimental to Valley. The final rule, effective December 30, 2000, provided that the MR-O-14 data would be used solely for the routine rate (room charge), but not necessarily for the ancillary rate. The ancillary rate would be derived solely from facility supplied information submitted no later tha[n] June 15, 2000. The hearing examiner's opinion, adopted by the director, found that Valley's June 2000 Medicare cost report was the only timely submitted, facility-generated data. Even though DHSS possessed the more accurate M[R]-O-14 report before the deadline, and even though the data in that report was facility-generated, the hearing officer found that the report itself was an agency generated document, and thus not eligible for consideration under 7 AAC 43.685. This was so, even though the same report, had it been received by Valley before the deadline, and then resubmitted as support for its Medicare cost report, would have been accepted as facility-generated data for rate setting purposes, justifying a higher rate. The detriment to Valley from the use of the log based, rather than electronic billing based, data, may approximate $700,000 over the four year period. [ [2] ] Valley complains that it had no notice, before the rule was promulgated in final form in the late fall, that DHSS would alter course and establish the ancillary portion of the FY 2001 rate by disregarding the MR-O-14 report in favor of inferior data. It therefore alleges a violation of its constitutional right to procedural due process in the form of timely notice of the rule change, with an attendant opportunity to cure the filing defect. While Valley considers the June 15 annual deadline to be arbitrary, it is fully capable of prospective compliance with the deadline. Therefore, this case in the first instance presents a question of procedural, rather than substantive, due process. DHSS argues that Valley, as a scofflaw filing an inaccurate Medicare cost report, deserves its fate. The agency makes no claim that the rate it set is in fact accurate, or superior in integrity to a rate established by accurate data; instead, it argues that the composite rate structure falls within broad standards of general fairness, even though Valley was de facto treated disparately from other Medicaid providers who were able to accurately report their cost data. In an administrative appeal, the Court reviews factual findings for sufficient evidentiary support. [1] A deferential rational basis standard applies to questions of law requiring agency expertise. [2] For all other questions of law, however, the Court substitutes its own judgment in a de novo review. [3] The requirements of the Alaska Constitution's due process clause, Article I § 7, apply in an administrative setting. [4] Alaska has adopted the three-part balancing test outlined in Mathews v. Eldridge [5] to determine whether administrative proceedings satisfy due process. The Court considers: First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probative value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. [6] Applying this test to the present case, the rigid application of 7 AAC 43.685 proposed by DHSS cannot stand. Valley's interest in full reimbursement for Medicaid patients, achieved by a rate that accurately reflects Valley's costs, is great; the difference stands close to $700,000 over four years. This loss easily could have been averted by administrative safeguards. Had DHSS merely allowed Valley to rectify its data once it received notice of the change, a more just and proper rate would have resulted. DHSS has invested time and effort into the propagation of rule 7 AAC 43.685, and it has an interest in preserving its effect. Nonetheless, to rigidly apply the rule here would violate Valley's procedural due process rights. DHSS and Valley did not come to the present dispute as strangers; the two entities have a long established relationship. In this instance, Valley acted as it always had done. The cost report filed in June had always been irrelevant, and there was no reason for Valley to think otherwise this time. Valley reasonably expected the same treatment it had received in previous years. There was no reason for Valley to expect the cost report to dictate the 2001 rate, when everyone understood the cost report data to be faulty. Even from the outset, the proposed rule failed to indicate the weight of the June report. When the present rule became formalized long after all deadlines had passed, it drastically changed from the expectations of the parties. As a result, Valley must be afforded an opportunity to correct its understandably erroneous data. By requiring Valley to provide accurate information by June 15, 2000, and informing Valley of this requirement several months after the fact, DHSS exceeds its authority to act retroactively. AS 44.62.240 limits such retroactive action when an agency's regulation is primarily legislative, as opposed to primarily interpretative. Such legislative regulations have prospective effect only. As the firm deadline for financial submissions mandated by 7 AAC 43.685 falls under the former category, AS 44.62.240 prohibits the retroactive application suggested by Valley. When similar situations have occurred elsewhere in the country, courts have agreed that procedural due process requires agencies to consider the actual costs to medical facilities, rather than strictly adhere to regulatory schemes that underestimate reimbursements. As one federal court has stated, As a general matter, when an adjudicating agency retroactively applies a new legal standard that departs radically from the agency's previous interpretation of the law, the agency must give entities regulated by the agency proper notice and a meaningful opportunity to adjust. [7] In Mississippi, for example, a nursing facility's computer glitch caused the facility to underreport patient costs by over $700,000. The Mississippi Division of Medicaid's regulations provided that assessment errors could be corrected prospectively from the date of correction. As a result, although the nursing facility corrected its data, and all parties agreed that Medicaid patients were treated at the facility's cost, Medicaid refused to reimburse the facility for its losses accrued before the date of correction. [8] The court acknowledged that the agency's own regulations forbade a retroactive reimbursement. The court held, however, that due process considerations outweighed the strict interpretation of the regulations. [9] In another case, a federal court similarly held that sudden changes in policy may not be binding upon regulated entities. In St. Luke's Methodist Hospital v. Thompson, [10] a hospital applied for Medicare reimbursement for atypical services using the same criteria upon which it had relied in prior years. While such requests had always been approved previously, this time the request was denied on the basis of a new interpretation of an existing regulation. While the court acknowledged an agency's authority to reevaluate an existing interpretation, it stressed that such sudden changes would receive little deference upon review. [11] The rate setting procedure set forth in 7 AAC 43.685, as applied to Valley's fiscal year 2001 Medicaid rate, violate[s] Valley's procedural due process rights. Thus, Valley is excused from literal compliance. DHSS will calculate the 2001 rate based on the accurate M[R]-O-14, as it has historically. Subsequent rates will be calculated according to 7 AAC 43.685.