filed: September 16, 1988.
FRANKLIN COUNTY NURSING HOME, PETITIONER
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT
PETITION FOR REVIEW
Mark H. Gallant, Esq., Philadelphia, Pa., for PETITIONER
Bruce G. Baron, ASST. COUNSEL, John Kane, CHIEF COUNSEL, Harrisburg, Pa., for RESPONDENT
Honorable David W. Craig, Judge, Honorable Bernard L. McGINLEY, Judge, Honorable Doris A. Smith, Judge
Opinion BY JUDGE McGINLEY
Franklin County Nursing Home (Franklin) appeals an order of the Executive Deputy Secretary*fn1 (Secretary) of the Department of Public Welfare (Department). The appeal pertains to the denial by the Secretary of reimbursement of costs under Pennsylvania's Medical Assistance Program (PA MAP), Section 443.1 of the Public Welfare Code.*fn2 Franklin contends that the reimbursement is mandated by Section 201 of the General Appropriations Act of 1980 (Appropriations Act). We affirm.
Franklin is a county skilled nursing and intermediate care facility (SNF and ICF, respectively) which provides services to Medicaid patients pursuant to PA MAP. During a fiscal year, Franklin receives interim payments which provide it with a steady cash flow for the fiscal year. The interim per diem rates are based on the latest annual adjusted reported costs and approved budgets. At the end of the fiscal year, Franklin's account is audited by the Auditor General and an appropriate adjustment is then made to the facility by the Department for over or under payments. The annual adjustment is based on actual allowable costs, subject to a ceiling. If the facility's audited rate (i.e., the lesser of its actual allowable costs or the applicable ceiling) exceeds the sum of the interim payments, then the facility is entitled to a reimbursement. Thus, the level of the ceiling directly affects the amount of a facility's reimbursement.
Prior to the ceiling revision which is at issue in this case, the ceiling was based on a statewide weighted average of year end reported per diem costs for such facilities. Section 201 of the Appropriations Act, which was signed into law on June 18, 1980, changed the method of determining ceilings. The Appropriations Act directed the Department to replace the statewide ceiling with a group-based ceiling system involving the calculation of separate ceilings for such nursing homes within each of five standard metropolitan statistical areas (SMSAs) within Pennsylvania.
Franklin's final audited rates of reimbursement for the fiscal year ending December 31, 1980, were determined in an audit report issued by the Auditor General on April 21, 1982. The report showed that Franklin's 1980 per diem operating costs were $42.37 for SNF and $29.23 for ICF. The SNF ceiling for the period from February 1, 1980, through June 30, 1980, was $49.23, and the ICF ceiling for this period was $35.51. The SNF ceiling for the period from July 1, 1980, through September 30, 1980, was $48.34, and the ICF ceiling for this period was $35.67. Because Franklin's per diem SNF cost was lower than the statewide SNF ceilings which were in effect for these periods, Franklin's final audited per diem SNF rate (i.e., the rate at which Franklin would be reimbursed) for these periods was $42.37, i.e., an amount equal to its actual allowable costs. Similarly, because Franklin's per diem ICF cost was lower than the statewide ICF ceilings which were in effect for these periods, Franklin's final audited per diem ICF rate for these periods was $29.23, again, an amount equal to its actual allowable costs. Franklin does not dispute the audit for these periods.
The SMSA-based ceilings were implemented on October 1, 1980.*fn3 Franklin was assigned to Non-SMSA Group III. Its SNF ceiling for the period from October 1, 1980, through December 31, 1980, was $39.24. Its ICF ceiling for this period was $29.14. Because Franklin's actual allowable SNF and ICF costs for this period were greater than the respective ceilings, its audited SNF and ICF rates, i.e., the rates at which it would be reimbursed, were equal to the new ceilings. The practical effect of the ceiling change, as it relates to this time period, is that Franklin did not recoup its costs.
Franklin's final audited rates of reimbursement for the fiscal year ending December 31, 1981, were determined in a report issued by the Auditor General on September 23, 1983. The report showed that Franklin's 1981 per diem operating costs were $42.29 for SNF and $31.65 for ICF. The SMSA SNF ceiling for the period from January 1, 1981, through June 30, 1981 was $39.24. The SMSA ICF ceiling for this period was $29.14. The SMSA SNF ceiling for the period from July 1, 1981, through December 31, 1981, was $48.85. The SMSA ICF ceiling for this period was $36.58. For the first half of 1981, Franklin's audited rate for both SNF and ICF equaled the SMAS ceilings, which were less than Franklin's costs. Again, the practical effect of these ceilings was that Franklin failed to recoup its actual allowable costs for the first half of 1981. Franklin does not dispute the audited rate for the second half of 1981.
Originally the Auditor General denied Franklin reimbursement for certain costs in Franklin's 1980 audit. Franklin appealed from the 1980 audit report on June 14, 1982, at docket No. 23-82-093. After a hearing on this matter, the hearing officer recommended that Franklin's reimbursement for the period from October 1, 1980, through December 31, 1980, be increased to the level of its actual allowable costs. On January 20, 1983, the OHA adopted this recommendation. On February 4, 1983, the Department petitioned for reconsideration, and an order granting reconsideration was entered on February 18, 1983. On May 23, 1983, the Department requested that the record be re-opened. On October 24, 1983, Franklin appealed from the 1981 audit report at Docket No. 23-83-317. On April 9, 1984, the OHA adopted the Hearing Officer's recommendation that the matters be consolidated. On May 8, 1984, the Secretary entered an order that the record be re-opened. Further evidence was admitted on May 17, 1984. On May 9, 1985, the Secretary entered an order reversing the OHA order of January 20, 1983.*fn4 On June 7, 1985, Franklin filed an appeal with this Court seeking review of the May 9, 1985 order.
Franklin argued below that the Auditor General erred when he set Franklin's audited rates for the periods in dispute by applying the new SMSA ceilings as a cap on Franklin's actual allowable costs. In doing so, Franklin contended, the Auditor General failed to give effect to what it termed a "no loss" provision in Section 201 of the Appropriations Act. This provision states that "the new ceilings shall provide that no public nursing home shall have a ceiling below its rate that was in effect prior to implementation of the new ceilings." Franklin interprets the word "rate" therein to mean final, audited rate. Pursuant to this line of reasoning, because Franklin's final audited rate prior to the implementation of the new ceilings was equal to its actual allowable costs, its new ceiling should not have been less than $42.37 for SNF and $29.23 for ICF.*fn5
In his order reversing the decision of the OHA, the Secretary reaffirmed the reasoning he had applied in his order granting reconsideration. In that decision he rejected Franklin's suggested interpretation that "rate" meant final, audited rate. He noted that under such an interpretation, " each county nursing home's applicable SMSA cost ceiling will vary according to the facility's unique audited rate for the cost reporting period 1980-1981." He further noted that the Federal Government would not reimburse the state for costs which exceeded the already-established ceilings. Holding that state law permits funding of only those costs which meet requirements for federal participation, and that the County's suggested interpretation would make such compliance impossible, he reversed the OHA and denied Franklin's appeal.
On appeal, the parties set forth their respective interpretations of the word "rate." As it did below, Franklin contends that the "no loss" provision can be given no effect unless "rate" means final or audited rate. The Department argues that "rate" can not be given such an interpretation because the Department would then be obligated to make payments for which federal reimbursement would not be available, and that such payments are forbidden by state law. Alternatively, the Department argues that the "no loss" provision was never approved by the federal government, so that the provision was not effective under its own terms. Finally, the Department argues that Section 201 of the Appropriations Act did not require the Department to adopt the SMSA ceiling system, because a mandatory provision would have violated Article III, § 11 of the Pennsylvania Constitution (which limits substantive provisions in general appropriations bills).*fn6
Our scope of review is limited to a determination of whether the Secretary's adjudication is in accordance with the law, any constitutional rights were violated, or the findings of fact were not supported by substantial evidence. Westmoreland Manor v. Commonwealth, 91 Pa. Commonwealth Ct. 155, 496 A.2d 1282 (1985). In the matter before us, Franklin contends that the Department erred as a matter of law.
We address first Franklin's contention that the Secretary misinterpreted the term "rate" as it is used in Section 201 of the Appropriations Act. This provision states as follows:
Effective January 1, 1981, in accordance with Federal regulations, the Department of Public Welfare shall replace the current Statewide ceilings for county nursing homes. New ceilings shall be calculated for each standard metropolitan statistical area and nonstandard metropolitan statistical area group within the State and shall be paid retroactively to July 1, 1980. The new ceilings shall provide that no public nursing home shall have a ceiling below its rate that was in effect prior to implementation of the new ceilings. This and any other change in the method of county home reimbursement must be approved in advance by the Federal Department of Health and Human Services. (Emphasis added.)
Because the meaning of the term "rate" in Section 201 is not explicit, we must determine what the intention of the General Assembly was when it drafted this provision. We are guided in this effort by rules of statutory construction. Section 1921(c) of the Statutory Construction Act of 1972 (Statutory Construction Act), 1 Pa. C.S. § 1921(c), states that "when the words of the statute are not explicit, the intention of the General Assembly may be ascertained by considering, among other matters: . . . (6) The consequences of a particular interpretation. . . . [and] (8) Legislative and administrative interpretations of such statute."
The application of these principles leads to the conclusion that the proper interpretation of the term "rate" is the one proposed by Franklin, i.e., final or audited rate. The Department asserts that it "has always taken the position" that the word "rate" meant interim rate, and that the purpose of the clause was to avoid sudden changes in cash flow. Respondent's brief at 30. The record does not support this assertion. Instead, it is clear that prior Department officials, as well as a federal administrator for Medicaid, placed the same interpretation on the term "rate" as does Franklin. An administrator for the Federal Medicaid program, in a memorandum analyzing the Pennsylvania "state plan". (a copy of which was sent with cover letter dated December 24, 1980, to Mrs. Helen O'Bannon, then Secretary of the Department) indicated that Section 201 of the Appropriations Act contained a "no loss" clause. The pertinent passage from the memorandum reads as follows:
Additionally, we observe that the language in the Pennsylvania appropriations bill concerning the subject amendment includes a "no loss" clause for affected facilities. That is, the appropriations language provides that no public nursing home shall have a ceiling below its rate that was in effect prior to the imposition of the new ceilings. The "no loss" clause appears acceptable, but this provision should be included in the plan.
Official Record, Item No. 6, Exhibit A-3 at 6.
In then-Secretary O'Bannon's letter to another federal Medicaid administrator, she acknowledged the existence of the "no loss" provision, and she applied an interpretation of the word "rate" which is consistent With Franklin's interpretation.
The Appropriations Act requires the Department to reimburse county nursing facilities actual allowable costs subject to ceilings established by Standard Metropolitan Statistical Areas. Under this legislation, no county nursing home shall have a ceiling below the rate that was in effect as of December 31, 1980. Therefore, if the computed ceiling for a Standard Metropolitan Statistical Area is less than the reimbursement a facility received on December 31, 1980, the facility would continue to be reimbursed at the higher rate.*fn7
Reproduced Record at 39a (emphasis added).*fn8
Then-Deputy Secretary Gerald F. Radke, in a letter to the Chairman of the Franklin County Commissioners, reiterated this interpretation.
The Appropriations Act requires the Department to reimburse county nursing facilities actual allowable costs subject to ceilings established by Standard Metropolitan Statistical Areas. Under this legislation, no county nursing home shall have a ceiling below the rate that was in effect as of December 31, 1980. Therefore, if the computed ceiling for a Standard Metropolitan Statistical Area is less than the reimbursement (emphasis added) a facility received on December 31, 1980, the facility would continue to be reimbursed at the higher rate.*fn9
Official Record, Item No. 6, Exhibit A-5.
These latter two letters clearly indicate that the Department at the time did not interpret "rate" to mean interim rate, but rather that the term referred to the final or audited rate, on which reimbursement was based.
This interpretation is consistent with the purpose of Section 201 of the Appropriations Act, which was to replace the average statewide ceilings so that facilities in more expensive areas would be subject to ceilings more related to their economic settings. Both parties to this dispute agree that a corollary result was that ceilings might fall with respect to county facilities in less expensive areas; so that whereas their costs previously might have been within the average statewide ceiling, their costs might exceed the new SMSA ceilings. The Department claims that the concept of a ceiling requires the possibility of losses, and that the General Assembly did not intend to perpetuate the old ceilings by "grandfathering" them. As support for this proposition, the Department notes that the disputed proviso has not been continued by subsequent bills for later years. To the contrary, this fact supports Franklin's position that the General Assembly intended to "grandfather" the old ceilings for a limited time in order to cushion the impact of the implementation of the new ceilings.
The Department argues that the General Assembly could not have intended "rate then in effect" to mean audited or final rate because the audited or final rate would not exist until the audit was performed, which would not be until after the new ceilings were implemented. The Department therefore contends that the audited or final rate would not be "in effect" at the time the new ceilings were implemented. We are not convinced by this argument. Ordinarily, the audit for the period ending June 30, 1980, would be performed prior to the audits for the subsequent periods. Thus, the auditor will already know what "rate" was "in effect at the time the new ceilings were implemented" when the audit is performed for subsequent periods.
Although we find that Franklin's interpretation of "rate" is correct, and although we condemn the Department's violation of Section 201 of the Appropriations Act by failure to seek federal approval of a "no loss" provision, we find that we must affirm the Secretary's decision.*fn10 The Secretary denied Franklin's appeal on the theory that the Department could not lawfully reimburse Franklin for costs which exceeded the new ceilings. We agree. The clear intent of the General Assembly in enacting Section 201 of the Appropriations Act was to permit the Department to receive funding from the Federal Medicaid program. The first line of the provision contains the wording "in accordance with Federal regulations." In the last line of the provision, the General Assembly directs the Department to obtain federal approval prior to making the changes. This intent is consistent with prior statutory authority concerning PA MAP.*fn11 Evidence of record demonstrates that Federal approval of the "no loss" provision was not obtained.*fn12 Consequently, the "no loss" provision, on its own terms, may not be given effect,*fn13 and the Secretary's order is affirmed.
AND NOW, September 16, 1988, the Order of the Department of Public Welfare, dated May 9, 1985, at Nos. 23-82-092 [sic, 23-82-093] and 23-82-113 [sic, 23-83-317] is affirmed.