11-1800-9485-2

9-1800-10087-2

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA DEPARTMENT OF HUMAN SERVICES

In the Matter of the Rate Appeal of Surf and Sand Nursing Home, Inc.,

Appellant,

vs.

Minnesota Department of Human Services,

Respondent.

ORDER DENYING APPELLANT’S MOTION FOR SUMMARY DISPOSITION

The above-captioned matter is pending before Administrative Law Judge Phyllis A. Reha pursuant to a Notice of and Order for Hearing and Prehearing Conference issued by the Deputy Commissioner of the Minnesota Department of Human Services (DHS) on October 4, 1995. Appellant has moved for summary disposition on the issues in this matter. In opposing the motion, DHS maintains that it is entitled to disposition in its favor as a matter of law. A hearing was held on the motion on May 23, 1996, at 10:00 a.m. in Courtroom 3 at the Office of Administrative Hearings, Suite 1700, 100 Washington Square, Minneapolis, Minnesota.

Peter B. Hofrenning, Assistant Attorney General, 445 Minnesota Street, Suite 900, St. Paul, Minnesota 55101-2127, appeared on behalf of DHS. Bernard C. Buchanan, President of Surf and Sand, Inc., 1910 Pheasant Drive, Harlingen, Texas 78550, appeared on behalf of the Appellant. The record on this motion closed on May 23, 1996, at the close of the hearing.

Based upon all of the files, records, and proceedings herein, and for the reasons set forth in the Memorandum attached hereto,

IT IS HEREBY ORDERED THAT:

(1) That the Appellant’s Motion for Summary Disposition be DENIED.

(2) Since genuine issues remain for hearing, a prehearing telephone conference will be held on July 22, 1996, at 2:00 p.m. to discuss any outstanding prehearing issues and schedule a hearing date. The Administrative Law Judge will initiate the call.

Dated this _____ day of June, 1996.

__________________________________

PHYLLIS A. REHA

Administrative Law Judge

MEMORANDUM

Appellant has moved for summary disposition in this matter on all issues. Summary disposition is the administrative equivalent to summary judgment. Minn. Rules pt. 1400.5500(K). Summary judgment is appropriate where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Sauter v. Sauter, 70 N.W.2d 351, 353 (Minn. 1955); Louwagie v. Witco Chemical Corp., 378 N.W.2d 63, 66 (Minn. App. 1985); Minn. R. Civ. P. 56.03. The Office of Administrative Hearings has generally followed the summary judgment standards developed in judicial courts in considering motions for summary disposition regarding contested cases. See Minn. Rules pt. 1400.6600.

It is well established that, it order to successfully resist a motion for summary judgment for the purpose of holding a hearing, the non-moving party must show that specific facts are in dispute which have a bearing on the outcome of the case. Hunt v. IBM Mid America Employees Federal Credit Union, 384 N.W.2d 853, 855 (Minn. 1986). The existence of a genuine issue of material fact must be established by the non-moving party by substantial evidence; general averments are not enough to meet the non-moving party’s burden under Minn. R. Civ. P. 56.05. Id.; Murphy v. Country House, Inc., 307 Minn. 344, 351-52, 240 N.W. 2d 507, 512 (1976); Carlisle v. City of Minneapolis, 437 N.W.2d 712, 715 (Minn. App. 1988). Summary judgment may be entered against the party who has the burden of proof at the hearing if that party fails to make a sufficient showing of the existence of an essential element of its case after adequate time to complete discovery. Id. To meet this burden, the party must offer “significant probative evidence” tending to support its claims. A mere showing that there is some “metaphysical doubt” as to material facts does not meet this burden. Id.

Appellant operated an intermediate care facility (ICF) in Minnesota under the name of Surf and Sand Nursing Home. The facility is small and until recently, family- owned. While operating the ICF, Appellant submitted cost reports to DHS for reimbursement of allowable costs incurred in providing care to residents under the federal Medicaid Act, 42 U.S.C. § 1396, and the state’s Medical Assistance Program, Minn. Stat. Ch. 256B. The reimbursement rates have been set under Minn. Rules 9549.0010-.0080 (Rule 50). Rule 50 rates are set on an annual basis and are based upon costs incurred in the prior year. A tentative rate is set by the Department each year based upon a desk audit conducted in the Department’s offices of the annual cost reports filed by the ICFs. Desk auditors typically expect some disputed costs to be clarified by further information. The Department also periodically conducts on-site field audits of each facility’s books and records. Changes are proposed to the facility’s rates based upon the findings of the field audit. Auditors in field audits rely upon actual invoices and other documentation in determining the allowability of costs claimed for reimbursement.

DHS conducted Rule 50 field audits of Appellant’s facility for the period of 10/1/86 to 9/30/90 and 8/1/90 to 9/1/91. As a result of those audits, a variety of costs were disallowed. A number of the disallowances were appealed by Appellant. Of the issues appealed to DHS, only one is the subject of this contested case appeal. The issue appealed is the reclassification of salary expenses from the nursing services, other care related, dietary, laundry and linen, and housekeeping categories to the general and administrative cost category. The effect of the reclassification was to disallow the salary costs because Appellant had already reached the cap on general and administrative costs.

The salaries at issue are for employees whose work responsibilities fall across several cost categories. Minn. Rule 9549.0030, subp. 3 governs allocation of salaries for personnel with multiple duties and provides as follows:

When a person other than top management personnel has multiple duties, the person’s salary cost must be allocated to the cost categories on the basis of time distribution records that show actual time spent or an accurate estimate of time spent on various activities. In a nursing facility of 60 or fewer beds, part of the salary or salaries of top management personnel may be allocated to other cost categories to the extent justified in time distribution records which show the actual time spent, or an accurate estimate of time spent on various activities. A nursing facility that chooses to estimate time spent must use a statistically valid sample. Persons who serve in a dual capacity, including those who have only nominal top management responsibilities, shall directly identify their salaries to the appropriate cost categories. The salary of any person having more than nominal top management responsibilities must not be allocated.

The field audit notes indicate that only two employees of Surf and Sand have allocated salaries over the period at issue. They are Diane Buchanan and Gwen Schoen. DHS Exhibit 2, Field Audit Memorandum [To review all salary allocations], at 1. The allocation was determined by the facility’s accountant, who allocated 25% of Schoen’s salary to bookkeeping and the remaining 75% to medical records. The same method was used for Buchanan’s salary. For department head duties, 25% each was allocated to dietary, laundry, and housekeeping; 25% was allocated to social worker duties. Id.

The field auditor inquired of Schoen what duties were performed by herself and Buchanan. The audit memorandum states:

Due to a lack of time studies and 25% of Gwen’s salary reported as the only bookkeeping or clerical payroll this facility had, the remaining 75% of Gwen Schoen’s salary will be reclassified from Medical Records, line 6116 to Clerical, 8016 in the following amounts:

* * *

Since Diane Buchanan is no longer working at the facility, I questioned Gwen Schoen regarding Diane’s duties. Diane was responsible for posting patient charges and cash receipts. Bill Buchanan or Diane prepared the bank deposit. I asked what social worker duties Diane performed. Gwen stated she had done some social work prior to having a social worker on the payroll. In response to when a social worker was hired, Gwen stated it was about ten years ago. I reviewed the cost reports and it is very apparent more than Diane’s salary allocation is reported as social work expense. I then asked for a description of laundry and housekeeping duties which Diane performed. Gwen stated she did order supplies for these departments prior to adding George Martin, maintenance department head, to the payroll. This occurred sometime in 1979. While reviewing operating procedures, Gwen did state Diane or one of the cooks ordered the food during the audit period. This would be consistent with the duties of the dietary department head where an additional 25% of Diane’s salary is allocated. Gwen stated overall, Diane performed job duties as assigned by Bill Buchanan, administrator. Based on this interview, Diane Buchanan’s position is more accurately support staff for administration and was improperly allocated to dietary, housekeeping, laundry and social worker. Gwen was not able to tell me if Diane kept time and attendance records or had ever completed a time study. Due to a lack of time and attendance records and a time study Diane Buchanan’s salary be reinstated by the appeals staff, it should be noted it would be inappropriate to report her salary as an allocation as originally recorded based on the findings of the above interview and should be considered a bookkeeper or clerical worker. Diane Buchanan’s salary will be disallowed as follows:

* * * *

DHS Exhibit 2, Field Audit Memorandum [To review all salary allocations], at 1-2.

Several points are notable about the field auditor’s memorandum. The stated reason for disallowing Buchanan’s allocated salary is the “lack of time and attendance records and a time study.” Id. at 2. The stated reason for disallowing Schoen’s salary was “due to a lack of time studies and 25% of Gwen’s salary reported as the only bookkeeping or clerical payroll this facility had, the remaining 75% of Gwen Schoen’s salary will be reclassified from Medical Records, line 6116 to Clerical, 8016 in the following amounts . . . .” Id. The field auditor recognized that Buchanan’s salary might be reinstated and that the original allocation should not be followed, “based on the findings of the above interview [with Schoen] and [Buchanan] should be considered a bookkeeper or clerical worker.” Id. The field auditor did not offer an opinion as to how such a finding, that Buchanan was doing clerical work, squared with the auditor’s conclusion that Schoen’s salary should be reclassified because Schoen was the only bookkeeper or clerical worker at the facility. The field auditor appeared to classify the job duties of Buchanan as an aide to the facility administrator rather than as an employee with specifically assigned duties. Id.

The field audit disallowances were applied to the Appellant’s cost reports and those disallowances were appealed to DHS. The disallowances were upheld on appeal for the following reasons:

There are no time distribution records to support the allocation of this salary cost [Schoen] between cost categories. Salaries of employees allocated to more than one cost category must be supported by time distribution records. Minn. Rules, Part 9549.0035, Subp. 3.B.

* * *

There are no time distribution records to support the allocation of Diane Buchanan’s salary to other care related, dietary, laundry, and housekeeping cost categories. The allocation of an employee’s salary to more than one cost category must be supported by time distribution records. Minn. Rules, Part 9549.0035, Subp. 3.B.

DHS Exhibit 1, at 7-8.

Appellant initiated a contested case appeal of the DHS determination and a Notice of and Order for Hearing and Prehearing Conference was issued in this matter. Appellant acknowledges that the originally claimed estimates of time spent on duties in the various categories are incorrect. An affidavit from Buchanan has been submitted indicating that her time should have been allocated 55% to administrative duties, 40% to dietary duties, and 5% to social services duties. Appellant Exhibit 2. Schoen provided an affidavit that her time should have been allocated 65% to administrative duties, 25% to medical records duties, and 10% to social service duties. Appellant Exhibit 1.

Appellant argues that the rule explicitly allows the estimation of time across cost categories, and therefore, the estimates provided by the employees themselves should be accepted to determine the proper reimbursement. Appellant further argues that the rule does not provide proper guidance as to any one methodology for estimating time; it was confused as to what the proper method was for estimating time; and thus, DHS should allow reimbursement based upon the estimates provided in its employees’ affidavits. Moreover, Appellant argues that DHS has settled similar disputes with other providers based upon time estimates supplied by employees.

DHS argues that a decision to settle a dispute with any particular provider is based on the specific facts and circumstances of each case. Simply because DHS has accepted a particular methodology in settling a dispute in one case, does not mean it must accept the same methodology in another. Settlements do not create precedents. While Appellant has shown that DHS did settle a dispute with a provider who submitted no time distribution records or time studies, there has been no showing that any long-standing agency practice exists which would require DHS to always accept such data as adequate to establish reimbursable salary allocation. Therefore, the Appellant has not demonstrated that DHS must accept the affidavits as sufficient evidence of salary allocation.

DHS further maintains that there is no evidence of confusion in applying the salary allocation rule; and therefore, Appellant’s argument on this issue should be rejected. The issues identified in the field audit itself demonstrate that there was significant confusion over how employee salary allocations are determined. The lack of either time distribution records or a time study led the field auditor to ask the employees, for whom reimbursement was being claimed, about their job duties. Only after the field auditor decided that the time claimed by these employees was not consistent with the volume of work thought to be appropriate, did the he recommend reallocation of the salary costs to the general and administrative category. In addition, according to the field audit notes, the field auditor recognized the possibility that the reallocation might not be followed, and suggested an alternative reason for not allowing the costs. This alternative basis suggests that DHS did not have a settled policy for reporting or allowing the claimed costs.

Despite the apparent lack of a settled policy for reporting salary costs, the evidence does not demonstrate that the Appellant clearly followed the appropriate method for allocating salaries. Appellant cannot demonstrate its claimed costs are proper simply by showing that DHS is does not have a clear policy. To demonstrate the propriety of a claimed cost, Appellant must show that it has complied with the rules governing that cost.

To comply with Minn. Rule 9549.0035, subp. 3, a provider can provide time distribution records or an “accurate estimate” of the time spent on reimbursable duties. The only limitation on estimating time is that a “statistically valid method” must be used. What constitutes a “statistically valid method” is not described in the rule.

Prior to 1986, the reimbursement of ICFs for care provided used a different system set out in Minn. Rules 9510.0010 to 9510.0480 (Rule 49). Under Rule 49, cost allocations were required within the variety of services provided, ( e.g. nursing care, dietary, laundry and linen, housekeeping, etc.) based on the level of care provided. Minn. Rule 9510.0210. The reimbursement rate for the facility was set based in part on the level of care that each patient required. The rule regarding personnel with multiple duties stated:

In instances in which individuals have multiple duties, the person’s salary cost will be allocated to categories part 9510.0180 on the basis of management’s estimate of time spent on various activities. This procedure will not be applied to administrators or other chief executives’ salaries in facilities with 60 or more licensed beds.

Minn. Rule 9510.0200 B.

To accurately allocate care to the level of reimbursement allowed, Minn. Rule 9510.0210 required direct identification and cost allocation based on time or cost studies, or other methods directly related to the cost area (e.g. in dietary, the number of meals served). Thus, management could estimate the percentage of time staff was working within a cost category; and, time studies (in the absence of documentation) would be required to determine the reimbursement due the facility based on the level of patient care for that staff time. Such a time study would have to account for the variables of different levels of patient care, the time spent on each patient, and the extrapolation of those amounts for the period sought for reimbursement.

In 1985, DHS adopted Rule 50, which changed the reimbursement system to eliminate the differences of payment for each level of care. In its Statement of Need and Reasonableness (SONAR), DHS supported the new rule on personnel with multiple duties with the following statement:

Subpart 3 recognizes that a number of nursing homes may employ personnel who perform duties which may be allocated to more than one cost category. Unless time distribution records are maintained, it would be impossible for the Department to accurately assess the allocation of costs. The Department recognizes that smaller facilities will frequently have top management personnel performing multiple tasks and makes allowance for this practice consistent with the operation of the previous rule.

DHS SONAR, at 15.

This SONAR statement is inconsistent with the rule as adopted. The rule as adopted allows time estimates to determine the appropriate allocation of costs. Rule 49 required statistical studies to determine the appropriate reimbursement across levels of patient care. Rule 50 eliminated allocation across levels of patient care. The only allocation remaining was across cost categories or for less than full time personnel. The Report prepared by Administrative Law Judge Jon Lunde, approving Rule 50 for adoption by DHS, identifies the finally adopted language as a change from the originally proposed language. In the Matter of the Proposed Adoption of Department of Human Services Rule Governing Payment Rates for Nursing Homes, OAH Docket No. HS-85-036-JL, at 24 (Report issued May 7, 1985)(hereinafter “ALJ Report”). Regarding the allocation of time for personnel with multiple duties, Judge Lunde wrote:

Under this rule, a nursing home is not required to maintain detailed logs showing how a person with multiple duties has spent his time in the various departments. It may maintain such records, but it may also use any other method showing the actual time spent or providing an accurate estimate of the time spent in the various cost categories. Sampling methods can be used as long as the sample produces an accurate estimate of the time the individual spends in the various activities.

ALJ Report, at 24.

In addition to the foregoing analysis, Judge Lunde also discussed the need and reasonableness of proposed rule 9549.0035, subp. 3, item B, which governs the documentation of costs of employees. As originally proposed, the rule would have required employees with less than full time duties to document their time. In response to criticism of the proposed rule, DHS modified the rule to allow “an accurate estimate of time spent performing assigned duties.” Id. at 29. In response to this change, Judge Lunde wrote:

However, the Department should consider making a further clarification. At the time of a desk audit, or later field audit, if the Department is not persuaded that the method used constitutes an accurate estimate, it may disallow the allocation of salaries claimed by the nursing home and make adjustments which could conceivably [sic] result in the disallowance of some costs. At that point, its actions would be retroactive in nature and the nursing homes may not have alternative evidence or records to verify the allocations claimed. For that reason, the Department should consider more specific language creating a minimum standard for determining what is an “accurate estimate”. The rule could state that a statistical sample yielding reasonably reliable estimates, time studies conducted by an independent agency, or figures extrapolated from time records for a certain minimum number of days throughout the calendar year are acceptable.

ALJ Report, at 29 (emphasis added).

In response to Judge Lunde’s suggestion, DHS adopted “The nursing facility that chooses to estimate time must use a statistically valid method.” Minn. Rule 9549.0035, subp. 3, item B. This is identical language to that in Minn. Rule 9549.0030, subpart 3. As stated above, no definition of what constitutes a “statistically valid method” is present in the rule. Using the analysis in the ALJ Report for the less than full time employees, the statistically valid method is a safe haven for determining costs, not a requirement that supersedes any other evidence of time spent in any particular activity. Further, there is an argument to be made that taking a sample of 100 percent of the employees for whom salaries are allocated and 100 percent of the time over which the allocations are to be made is a “statistically valid method” for estimating time. As the record presently stands there is no evidence that the employee’s time estimates do not meet the accurate estimate requirement of Minn. Rule 9549.0030, subp. 3.

Since the facility has provided evidence supporting a modified allocation of salaries across cost categories, there is a basis to conclude that DHS’s determination of reimbursable costs is not correct. The only valid objection raised by DHS, and supported by the record, goes to whether the information provided by Appellant is accurate. This objection is a genuine issue of material fact. Under the established standards for summary disposition, Appellant has a right to be heard on the issue of what the proper amount of reimbursement should be for the salary cost of the two employees. A conference call is hereby scheduled to set the hearing date and to resolve any remaining prehearing issues.

P.A.R.

STATE OF MINNESOTA)
)	ss
COUNTY OF HENNEPIN)

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