Miss. Div. of Medicaid v. Windsor Place Nursing Ctr., Inc.

296 So.3d 68

MISSISSIPPI DIVISION OF MEDICAID and Drew Snyder, in His Official Capacity as Director of Mississippi Division of Medicaid

v.WINDSOR PLACE NURSING CENTER, INC. d/b/a Windsor Place Nursing & Rehab Center, Billdora Senior Care, LLC, Lexington Manor Senior Care, LLC and Magnolia Senior Care, LLC

NO. 2018-SA-01263-SCT

Supreme Court of Mississippi.

May 14, 2020

ATTORNEYS FOR APPELLANTS: OFFICE OF THE ATTORNEY GENERAL BY: LAURA L. GIBBES, JANET McMURTRAY, SAMUEL PHILIP GOFF, T. HUNT COLE, JR., DION JEFFERY SHANLEY, Ridgeland

ATTORNEYS FOR APPELLEES: RANDALL ELLIOTT DAY, III, JULIE BOWMAN MITCHELL, Ridgeland, ELLEN PATTON ROBB, PHILIP JOSEPH CHAPMAN, Ridgeland

BEFORE RANDOLPH, C.J., MAXWELL AND BEAM, JJ.

BEAM, JUSTICE, FOR THE COURT:

¶1. The Mississippi Division of Medicaid (DOM) appeals the Hinds County Chancery Court's judgment ordering the DOM to reverse the adjustments for "Legend Drug"¹ costs reported by Windsor Place Nursing Center, Inc., d/b/a Windsor Place Nursing & Rehab Center (Windsor) and Billdora Senior Care, Lexington Manor Senior Care, and Magnolia Senior Care (collectively Senior Care).² The chancery court found that the legend drug expenses incurred by these providers were properly reported on each of their Long Term Care (LTC) cost reports as an allowable cost and should have been taken into account the by DOM in determining the per diem rates for each provider.

¶2. The DOM contends that its decision to disallow the legend drug expenses claimed by the providers in their required cost report for reporting years 2005, 2007, and 2008 was supported by substantial evidence, was not arbitrary or capricious, and was within its authority to decide. Therefore, the chancery court's order must be reversed and the DOM's decision must be reinstated. We agree with the DOM.

FACTS AND PROCEDURAL HISTORY

¶3. In 2008, the DOM contracted Clifton Gunderson, LLP (Gunderson), an independent audit/accounting firm to perform audit reviews of LTC annual cost reports submitted by LTC providers. Gunderson informed the DOM that certain providers were claiming legend drug costs on their cost reports for per diem reimbursement.

¶4. Following a "desk review process," the DOM adjusted the cost reports filed by Windsor for 2005, 2007, and 2008 and the cost reports filed by Senior Care in 2007. The DOM adjustments disallowed the prescription-drug costs that Windsor and Senior Care had claimed they incurred in providing resident care. As stipulated by the parties, the prescription-drug-adjustment-dollar amounts for Windsor and Senior Care costs were as follows:

1. Windsor 2005 ($177,446); 2007 ($249,810); 2008 ($241,997)

2. Senior Care: Billdora 2007 ($31,238);

3. Magnolia 2007 ($11,003);

4. Lexington Manor 2007 ($19,369).

¶5. Following these adjustments, the DOM sought to recoup the amounts from Windsor and Senior Care that, according to DOM, were "overcharged initially by virtue of the provider's interpretation of the cost reporting requirements." The providers filed an administrative appeal of these adjustments.

¶6. They claimed that the plain language of the Medicaid State Plan and the applicable cost report instructions require that all prescription drug costs "not covered by the Medicaid Drug Program (i.e., not paid for by Medicaid)" are an allowable cost. They argued that such costs were incurred by the providers as a necessary expense in caring for the residents and that their interpretation of the state plan and cost report instructions as applied to the costs reports at issue was correct and consistent with the DOM's practice.

¶7. Following multiple administrative hearings, two separate Medicaid hearing officers issued factual findings and legal conclusions that the DOM had correctly disallowed the prescription drug costs. The DOM said that the only prescription drugs that could be claimed as an allowable cost on a provider's cost report were those drugs "not covered" by Medicaid.

¶8. In summary, both hearing officers found that: (1) the prescription drugs that are "covered" by Medicaid are listed in a formulary; (2) Medicaid reimbursement for the costs of prescription drugs on the formulary is to be made directly to dispensing pharmacists under a computer point-of-sale program - not by the inclusion of any such claimed expenses on a per diem cost report; (3) the Medicaid State Plan provides that the amount paid for any item which is "subject to direct reimbursement" is a non-allowable cost; (4) Provider Policy Manual (PPM) section 36.07 (2/04) provides that services that could be billed directly to Medicaid, which include lab services, x-rays, and drugs covered by the Medicaid drug program, are non-allowable costs; (5) PPM section 31.07 (2/04) defines the drug costs that could be allowed on an LTC per diem cost report as mostly over-the-counter drugs; (6) the LTC Cost Report Instructions (3/05) in effect at all relevant times for the 2005, 2007, and 2008 reporting years advised that only the cost of drugs "not covered by the Medicaid Drug Program" could properly be claimed; (7) the amended cost report instructions that became effective in May 2009 were not a substantive change to previous instructions or policy and were not applied retroactively by the DOM to the subject cost reports and actually were not applied at all; and (8) the DOM is permitted to correct errors in LTC cost reports and to make appropriate adjustments for overcharges and doing so is not a change in rate methodology.

¶9. The executive director of the DOM adopted the findings, report, and recommendations of the hearing officers. The providers appealed the DOM's decision to the chancery court, and the appeals were consolidated into one.

¶10. The providers claimed in the chancery court that the evidence and testimony presented at the administrative hearings showed that the DOM had never disallowed prescription drug costs incurred by a provider from the provider's cost report until Gunderson's audit review in 2008. They claimed that numerous witnesses testified at the hearings that it was not until Gunderson's audit that the DOM made a decision to change its practice and policy for allowing prescription-drug costs.

¶11. The providers acknowledged that the DOM properly amended the cost report instructions, effective May 12, 2009, and the state plan, effective March 18, 2010. But they contended that the DOM's adjustments to the cost reports before the effective dates of these amendments violated the law because the DOM retroactively applied new rules.

¶12. The chancery court agreed with the providers. According to the chancery court, no substantial evidence was presented by the DOM to support a finding that the legend drug costs at issue were not an allowable cost before 2008. The DOM had argued and the hearing officers had found that it was simply an error that the providers’ cost reports had never been adjusted to disallow legend drug costs and that the error was caught by the DOM in 2008, before the amendments.

¶13. But, according to the chancery court, the DOM failed to present substantial evidence to support this determination. The chancery court found that the change in policy in 2008 was a substantial change that resulted in decreasing the per diem reimbursement rate to the providers. The court said that "[t]his change resulted in an about-face by DOM and made Legend Drug costs which were once allowable by the Medicaid program no longer allowable." Accordingly, the chancery court found that the DOM arbitrarily changed its policy without properly amending the state plan and cost-report instructions.

DISCUSSION

¶14. This Court employs the same standard of review that our lower courts are bound to follow when reviewing agency decisions. Crossgates River Oaks Hosp. v. Miss. Div. of Medicaid , 240 So. 3d 385, 387 (Miss. 2018) (citing Miss. Comm'n on Envtl. Quality v. Chickasaw Cty. Bd. of Supervisors , 621 So. 2d 1211, 1216 (Miss. 1993) ). "Our courts are not permitted to make administrative decisions and perform the functions of an administrative agency. Administrative agencies must perform the functions required of them by law." Miss. State Bd. of Nursing v. Wilson , 624 So. 2d 485, 489 (Miss.1993) (quoting State Farm Ins. Co. v. Gay , 526 So. 2d 534, 535 (Miss. 1988) ). An administrative decision may be reversed if the decision "(1) was not supported by substantial evidence, (2) is arbitrary or capricious, (3) was beyond DOM's power to adopt, or (4) violates a constitutional or statutory provision." Id. (citing Town of Enterprise v. Miss. Pub. Serv. Comm'n , 782 So. 2d 733, 735 (Miss. 2001) ).

¶15. Interpretation of a rule or regulation governing the agency concerns a matter of law, which is reviewed de novo, with great deference afforded to the agency's interpretation of the rule. Sierra Club v. Miss. Envtl. Quality Permit Bd. , 943 So. 2d 673, 678 (Miss. 2006) (quoting McDerment v. Miss. Real Estate Comm'n , 748 So. 2d 114, 118 (Miss. 1999) ). This deference, however, does not extend to an agency's interpretation of a statute, "which is properly reserved to the courts of this state." King v. Miss. Military Dep't , 245 So. 3d 404, 408 (Miss. 2018).

¶16. Medicaid is a cooperative federal-state program that provides medical assistance to medicaid-eligible individuals. Jones v. Howell , 827 So. 2d 691, 693 (Miss. 2002). To qualify for federal funds, a state must submit a Medicaid plan to the secretary of the Department of Health and Human Services for approval. Cent. Miss. Med. Ctr. v. Miss. Div. of Medicaid , No. 2018-SA-01410-SCT, 294 So.3d 1121, 1123 (Miss. Feb. 13, 2020) (citing 42 U.S.C. § 1396 (2012) ), reh'g denied (Miss. May 7, 2020). The DOM "is bound to follow the plan and cannot deviate from it." Id. (citing Crossgates River Oaks Hosp. , 240 So. 3d 385 ).

¶17. Attachment 4.19-D of the state plan, "Guidelines for the Reimbursement for Medical Assistance Recipients of Long Term Care Facilities," in effect for the cost-reporting periods at issue, reads...