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John XXIII Home v. Department of Public Welfare

January 22, 2010


Per curiam.


NOW, April 16, 2010, it is ordered that the above-captioned Memorandum Opinion, filed January 22, 2010, shall be designated OPINION and shall be REPORTED.



John XXIII Home (Provider) petitions for review of the January 12, 2009 order of the Secretary of Public Welfare (Secretary) who, upon reconsideration, upheld the order of the Bureau of Hearings and Appeals (BHA) dated July 18, 2008. In its July 18, 2008 order, the BHA adopted the recommendation of an administrative law judge (ALJ) granting the Department of Public Welfare, Office of Medical Assistance Programs' (Department) Motion for Summary Judgment (Motion) and dismissing Provider's appeal from its placement in peer group 9 for the fiscal year 2004-2005. Provider asserts that the Secretary erred in affirming the grant of summary judgment because: (1) there was a genuine issue of material fact as to whether it was impossible for the Department to utilize its then-existing regulation at 55 Pa. Code § 1187.94(1)(i) to reclassify Provider into a new Metropolitan Statistical Area (MSA) and peer group 6; (2) certain of the Secretary's findings of fact were not supported by substantial evidence; and (3) the Secretary erred in relying on regulations, statutes, and an Amended State Plan for Medical Assistance (Amended State Plan) not yet in effect to support the grant of summary judgment.

Provider is a nursing facility with between 3 and 119 beds and participates in the Medical Assistance (MA) Program (MA Program). (ALJ's Recommendation, Findings of Fact (FOF) ¶¶ 10-11.) Pursuant to the Public Welfare Code (Code)*fn1 and the Department's regulations, nursing facilities that participate in the MA Program, such as Provider, are classified into mutually exclusive peer groups for the purposes of establishing, inter alia, prices, rates, and MA payments for a given fiscal year. See 55 Pa. Code §§ 1187.94-1187.97 (setting forth the manner in which nursing facilities are funded). A nursing facility's peer group placement depends upon: (1) whether it is a special rehabilitation facility or a hospital-based nursing facility;*fn2 (2) the number of beds in the facility; and (3) the MSA Group (A, B, C, or non-MSA) in which the nursing facility is located pursuant to the statistical data set forth by the federal Office of Management and Budget (OMB). 55 Pa. Code § 1187.94. For example, nursing facilities that are not special rehabilitation facilities or hospital-based nursing facilities, that have no more than 119 beds and are located in MSA Group B, are placed in peer group 6 for price- and rate-setting purposes. Id. Thus, the Department's placement of nursing facilities in peer groups depends upon how the OMB categorizes MSAs.

The OMB publishes official bulletins identifying, among other things, MSAs within the United States. In the OMB Bulletin No. 99-04 (Bulletin 99-04), the OMB classified MSAs into four levels based on population: Level A-areas with a population of one million or more; Level B-areas with a population of between 250,000 and 999,999; Level C-areas with a population of between 100,000 and 249,999; and Level D-areas with a population of less than 100,000. (Bulletin 99-04 at 1, R.R at 1072a.) Bulletin 99-04 classifies Mercer County, Pennsylvania, in which Provider is located, as a Level C MSA. (Bulletin 99-04, Attachment at 44, R.R. at 1077a.) Based on Provider's MSA group classification and the number of beds it provides, Provider was placed in peer group 9 in accordance with the procedure set out in 55 Pa. Code § 1187.94(1)(iii).

In June 2003, OMB published Bulletin No. 03-04 (Bulletin 03-04), based on the 2000 census. Bulletin 03-04 reclassified Mercer County to the Youngstown-Warren-Boardman, OH-PA MSA (Youngstown MSA). (Bulletin 03-04, Attachment at 52, R.R. at 1091a.) However, Bulletin 03-04 revised the definitions of MSAs, stating that "[t]he 2000 standards do not provide for the categorization of the areas based on total population comparable to Levels A -- D under the 1990 standards" as provided for in Bulletin 99-04. (Bulletin 03-04, Attachment at 4, R.R. at 1086a.) Instead, Bulletin 03-04 included, among others, the following classifications: (1) MSAs, areas with "at least one urbanized area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties"; and (2) Micropolitan Statistical Areas, areas with "at least one urban cluster" with a population "of at least 10,000 but less than 50,000 . . . plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties." (Bulletin 03-04, Attachment at 2, R.R. at 1085a.) Although Bulletin 03-04 uses population to distinguish between Metropolitan and Micropolitan Statistical Areas, it does not, as Bulletin 99-04 did, subcategorize the MSAs into levels based on population. If Bulletin 03-04 had contained such subcategories and, if those categories were the same as listed in Bulletin 99-04, Mercer County would have been located in a Level B MSA. Under this classification, Provider would be placed in peer group 6 for price- and rate-setting purposes. Recognizing that some federal and state agencies use its statistical definitions in non-statistical programs, the OMB cautioned that its definitions should not be used to develop non-statistical programs "without full consideration of the effects of using these definitions for such purposes." (Bulletin 03-04 at 2, R.R. at 1083a.)

Following the OMB's advice, the Department examined its existing regulations and the effect the new standards set forth in Bulletin 03-04 would have on those regulations, as well as on nursing facilities, to determine whether the Department would adopt the new MSA standards for classifying nursing facilities into peer groups. Specifically, the Department looked at subsections 1187.94(1)(i) and (iii), which read, in relevant part:

(1) Nursing facilities participating in the MA Program, except those nursing facilities that meet the definition of a special rehabilitation facility or hospital-based nursing facility, will be classified into 12 mutually exclusive groups based on MSA group classification and nursing facility certified bed complement.

(i) The Department will use the most recent MSA group classification, as published by the [OMB] on or before April 1 of each year, to classify each nursing facility into one of three MSA groups or one non-MSA group.

. . . . (iii) The Department will classify each nursing facility into one of the following 12 peer groups:

Peer Group # MSA Group # Beds . . . 6 B 3-119 . . . 9 C 3-119 . . .

55 Pa. Code § 1187.94(1)(i), (iii) (1995) (found at 25 Pa. B. 4477, 4499 (1995)) (emphasis added). The Department concluded that, because the new standards established in Bulletin 03-04 eliminated the MSA group classifications, i.e., A, B, or C, Section 1187.94(1)(i) could not be applied as written and, therefore, it was required to amend that regulation to address how peer groups would be determined.

34 Pa. B. 1863-64 (2004).

The Department also compared the effect on nursing facilities if the Department used the new MSA categorization standards to determine peer groupings, i.e., moving nursing facilities, such as Provider, from one peer group to another peer group based on moving from one MSA to a different MSA or from a MSA to a Micropolitan Statistical Area, rather than the historic MSA categorizations set forth in Bulletin 99-04, i.e., maintaining the status quo. Id. Based on its analysis, the Department concluded that "a majority of nursing facility providers would be adversely affected (that is, the case-mix payment system would compute lower rates for the majority) if the Department were to adopt the new Federal MSA definitions." Id. Accordingly, on April 2, 2004, the Department announced its intent to publish proposed amendments to Section 1187.94(1)(i), effective for the fiscal year beginning July 1, 2004, that would retain the historic MSA classification set forth in Bulletin 99-04 and continue to classify each MA nursing facility as MSA A, B, C or nonMSA. The ...

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