Link to MN Supreme Ct. Decision
Link to DHS Decision after Remand
4-1800-14518-2
STATE OF MINNESOTA
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF HUMAN SERVICES
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In the Matter of the Rate Appeal of Benedictine Health Center
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RECOMMENDATION ON MOTIONFOR PARTIAL SUMMARY DISPOSITION AND DETERMINATION ON REMAND
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The Department of Human Services (the “Department” or “DHS”) began this contested case proceeding by issuing a Notice of and Order for Hearing and Prehearing Conference on October 24, 2001. The Notice provided for a hearing on whether the Commissioner of Human Services (hereinafter “Commissioner”) should affirm DHS’ disallowance of costs for self-insured employee health plans for Benedictine Health Center (BHC) for the 1995 and 1996 rate years.[1] Subsequently, counsel for both parties determined that an evidentiary hearing in this matter was unnecessary and that the issues could be determined by summary disposition.
On September 27, 2002, the parties both filed motions for summary disposition, and by recommendation issued on March 14, 2003, the undersigned Administrative Law Judge (ALJ) issued a report to the Commissioner recommending, among other things, that the Department’s motion for summary disposition be granted, and that BHC’s motion for summary disposition be denied. The Commissioner accepted the ALJ’s recommendation and entered an order to that effect on August 4, 2003. The Order further directed that, if the parties were unable to agree on the correct amount of adjustments, the matter be remanded to the ALJ to determine that specific issue. The parties were subsequently unable to agree on the correct amount of adjustments, and this proceeding was subsequently remanded to the ALJ for further proceedings on that issue.
The ALJ determined that the parties had all of the necessary information to calculate the correct amount of the adjustments, but that they had not included that information in the record. Consequently, in an Order dated June 21, 2004, the ALJ ordered the parties to supplement the record with that information. The ALJ specifically directed the parties to provide their calculations of the precise amounts of the disallowances. Both parties responded in July of 2004.
On September 13, 2004, BHC filed a motion for partial summary judgment on issues relating to the proceedings on remand. The Department subsequently responded to that motion, and BHC replied to that response. This contested case proceeding is, therefore, before the undersigned Administrative Law Judge for a recommendation on BHC’s motion for summary disposition. Erika Schneller Sullivan, Assistant Attorney General, Suite 900, 445 Minnesota Street, St. Paul, Minnesota 55101-2127, appeared on behalf of the Department. Samuel D. Orbovich, Attorney at Law, Orbovich & Gartner Chartered, 408 St. Peter Street, Suite 417, St. Paul, Minnesota 55102-1187, appeared on behalf of Benedictine Health Center. The record on the pending motion closed on October 8, 2004.
Based upon all of the records, files, and proceedings herein, the Administrative Law Judge respectfully RECOMMENDS:
(1) That Benedictine Health Center’s Motion for Partial Summary Disposition be DENIED; and
(2) That the Commissioner make disallowances in the amount of $168,037.44 for BHC’s reporting years ending September 30, 1994 and 1995, and make appropriate rate adjustments.
Dated this 19th day of November, 2004.
S/_____________________________
BRUCE H. JOHNSON
Administrative Law Judge
This Report is only a recommendation to the Commissioner of Human Services and not a final decision. The Commissioner will make his final decision after reviewing this report and the hearing record. In making that decision the Commissioner may adopt, reject or modify Conclusions and Recommendations that appear in this report.
Under Minnesota Law,[2] the Commissioner may not make his final decision until after the parties have had access to this Report for at least ten days. During that time the Commissioner must give any party adversely affected by this Report an opportunity to file objections to the Report and to present argument supporting its position. Parties should contact Kevin Goodno, Commissioner of Human Services, 444 Lafayette Road, St. Paul, Minnesota 55155, to find out how to file exceptions or present argument.
The record of this proceeding closes upon the filing of exceptions to the report and the presentation of argument to the Commissioner, or upon the expiration of the deadline for doing so. The Commissioner must notify the parties and the Administrative Law Judge of the date on which the record closes. If the Commissioner fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision.[3]
MEMORANDUM
I.
The Medical Assistance Rate Determination Process
In its normal course, the process for determining Medical Assistance (MA) reimbursement rates for nursing facilities, like BHC, proceeds in the following manner:
Nursing facilities that participate in the state’s MA Program by providing care to qualifying residents receive reimbursement from the Department in the form of a MA payment rate for a defined rate year. Calculation of payment rates is governed by several provisions of Minnesota statutes[4] and by rules that the Department has adopted establishing procedures for setting payment rates.[5] Those authorizing statutes and procedural rules are commonly known and collectively referred here to as “Rule 50.” Under Rule 50, the Department establishes prospective payment rates for a participating nursing facility to reimburse it for certain allowable costs of providing resident care. One portion of a nursing facility’s total payment rate for allowable costs takes the form of per diem reimbursements for operating costs, which are based on an individual facility’s historical operating costs.[6] Minn. Stat. § 256B.421, subd. 6, defines “historical operating costs” as:
… the allowable operating costs incurred by the facility during the reporting year immediately preceding the rate year for which the payment rate becomes effective, after the commissioner has reviewed those costs and determined them to be allowable costs under the medical assistance program, and after the commissioner has applied appropriate limitations such as the limit on administrative costs.
To determine its historical operating costs for reimbursement purposes, a nursing facility is required to collect and maintain data on its operating costs during “reporting years,” which extend from each October 1st to the following September 30th.[7] Thereafter, no later than December 31st of each year, the nursing facility must submit a “cost report” to the Department to report its operating costs during the previous reporting year.[8] Costs are reported to the Department in specified cost categories.[9]
By May 1st of each year, the Department must provide to all nursing facilities notice of a total payment rate that is based on the nursing facility’s cost report for the previous reporting year. That total payment rate is effective for the upcoming rate year¾that is, from July 1 of that year to June 30 of the following year.[10] But that initial reimbursement rate is subject to retroactive adjustments for reported costs that are allowable under applicable statutes and rules. In order to verify that reported costs are allowable ones, the Department must review the report by performing a desk audit.[11] Minn. R. pt. 9549.0020, subp. 19, defines “desk audit” as:
… the establishment of the payment rate based on the commissioner's review and analysis of required reports, supporting documentation, and work sheets submitted by the nursing facility.
During the desk audit process, the Department may disallow certain costs, reallocate costs from one cost category to another, or make other adjustments required by law.[12] After the Department reviews the cost report and determines allowable costs in the desk audit, DHS sets a prospective desk audit rate[13] for qualifying residents for the following “rate year.”[14] Rate years begin on July 1st and end on the following June 30th,[15] and the per diem rates payable during the rate year for resident care are based, in part, on what the Department determines were the allowable historical operating costs for the most recent reporting year.[16] In addition to conducting desk audits before initial rates are set, the Department also conducts more extensive, independent “field audits” after the initial rate has been set and paid.[17] Costs that might have been allowed on a desk audit may be disallowed on the field audit and the rates retroactively changed if the field audit reveals that the reported costs were not allowable or were not correctly categorized.[18]
After completion of either the desk audit or the field audit, if the nursing facility disagrees with the auditors’ disallowance of a cost item, the facility may appeal the disputed item if a successful appeal would result in a change to the facility’s total payment rate.[19] Once it receives a request for appeal of a disputed item, the Department may request additional written or oral information from the provider.[20] It must review the disputed items and issue a written appeal determination within one year of the due date of the appeal.[21] If the facility disagrees with the appeal determination, it may then request a contested case hearing to determine the appeal item.[22] A contested case demand for an appeal item nullifies the written appeal determination issued by the commissioner for that appeal item.[23] In a resulting contested case proceeding, the appealing party must demonstrate by a preponderance of the evidence that the determination of a payment rate is incorrect.[24]
No genuine dispute exists between the parties concerning the material facts.
Benedictine Health Center is a tax-exempt, non-profit Minnesota corporation that operates a 120-bed long-term care facility in Duluth, Minnesota. It participates in the MA Program by providing care to qualifying residents and receiving reimbursement for that care from the Department in the form of an MA payment rate. On December 30, 1994, BHC submitted to DHS its cost report for the reporting year ending September 30, 1994, and on December 29, 1995, it submitted its cost report for the reporting year ending September 30, 1994.[25] Based on those cost reports, the Department set total payment rates for BHC for the rate years beginning on July 1, 1995, and July 1, 1996. But the Department subsequently conducted field audits of the cost reports that form the basis for the total payment rates for those rate years. And on May 13, 1998, the Department issued a report of those field audits, which disallowed a number of costs, reallocated others from one cost category to another, and made other adjustments required by law.[26]
Most of the cost adjustments that were contained in the audit report of May 13, 1998, are not relevant to this proceeding. What is germane was that during the field audit process the Department learned BHC was self-insured for group medical insurance for the reporting years ending on September 30, 1994 and 1995.[27] It was the Department’s interpretation of applicable law that funds set aside for estimated future claims for medical expenses by employees of a self-insured facility were not allowable costs under Rule 50.[28] On the basis of that interpretation of the law, the field audit report retroactively adjusted BHC’s cost reports for the reporting years ending on September 30, 1994 and 1995, to reflect cost disallowances of $115,730 for the 1994 reporting year and an upward increase in allowable costs of $51,082 for the 1995 reporting year.[29] The field audit report did not contain or refer to upward cost adjustments relating to the cost of stop loss insurance or to downward cost adjustments relating to employee contributions to BHC’s self-insured medical benefit plan during those reporting years.[30]
By letter from the accounting firm of Larson, Allen, Weishar & Co., LLP, dated July 10, 1998, BHC appealed certain of the Department’s field audit adjustments, including the medical insurance costs that the field audit had disallowed.[31] During the course of the Department’s subsequent consideration of that appeal and as permitted by Minn. Stat. § 256B.50, subd. 1c (d), the Department requested BHC to provide additional information relating to the field audit’s medical insurance cost disallowance.[32] In response to that request, BHC provided the Department with additional information relating to that disallowance, including a schedule listing employee contributions to BHC’s self-insured medical benefit plan during the reporting years ending September 30, 1994 and 1995.[33] On July 9, 1999, within the time prescribed by law,[34] the Department issued its written determination on BHC’s appeal of some disallowances that resulted from the field audit.[35] Among other things, that appeal determination included the following statements relating to the medical insurance cost disallowances:
3. Disallowed Medical Insurance (Both Rate Years)
No change will be made. Allowable costs for self-insured health plans include the actual payment of claims, administrative fees, and stop loss insurance premiums. Additional amounts paid into a reserve fund are allowable if, among other conditions, the fund is controlled and administered by an unrelated party. Because the funds are deposited with a related organization, the additional payments are not allowable.
While the field audit adjustment contained some errors, not all of these were detrimental. The field audit adjustment failed to include the stop loss insurance premium, but also failed to offset employee contributions as an applicable credit against costs allowed. To correct these mistakes, additional adjustments should be made to reduce the allowable costs by $44,082 and $60,255 for the rate years beginning July 1, 1995, and July 1, 1996, respectively. (See the attachment for a calculation of the additional adjustment that should be made.)
For purposes of resolving this appeal, the additional adjustments will not be made. If further review of this item is requested, then the department will pursue these additional adjustments.[36]
By letter dated August 6, 1999, BHC requested a contested case hearing pursuant to Minn. Stat. § 256B.50, subd. 1c, to determine the resolution of the items set forth in the Department’s appeal determination. On October 25, 2001, the Commissioner filed a Notice of and Order for Hearing and Prehearing Conference (hereafter “Notice of Hearing”),[37] and this contested case proceeding ensued. Copies of the Department’s appeal determination and BHC’ request for a contested case proceeding were attached to the Notice of Hearing, which described the issues to be considered as follows:
Whether 1) DHS’s classification of supply and salary costs for the rate years 1995 and 1996 for the above-named provider facility should be affirmed; and whether 2) DHS’s disallowance of costs for a self-insured employee health plans (sic) for the 1995 and 1996 rate years should be affirmed.[38]
During the course of this proceeding, BHC withdrew its appeal of the issue in the rate determination relating to classification of supply and salary costs. Thereafter, the parties filed cross motions for summary disposition.[39] The relief requested in the Department’s motion for summary disposition was a recommendation by the ALJ that the Commissioner “affirm in all respects the Department’s rate adjustment to Benedictine Health Center’s costs for group medical insurance under appeal in this proceeding,”[40] and it also specifically discussed an adjustment to offset employee contributions in the memorandum it submitted in support of that motion.[41] Concomitantly, BHC also specifically addressed that issue in its response to the Department’s motion.[42]
On March 14, 2003, the ALJ issued a recommendation to the Commissioner that the Department’s motion for summary disposition be granted and that BHC’s motion for summary disposition be denied, and that the Commissioner enter an order upholding the Department’s appeal determination. Subsequently, on August 4, 2003, the Commissioner issued an order accepting the ALJ’s recommendation and granting the Department’s motion for summary disposition.[43] But the Commissioner also concluded that an issue remained unresolved regarding the precise amount of the disallowances to be made to BHC’s 1994 and 1995 reporting years and directed that, if the parties were unable to agree on the correct amount of those disallowances, the matter be remanded to the ALJ “to determine that specific issue.”[44] The parties were unable to agree on the amounts of those disallowances. So, the Commissioner remanded this contested case to the ALJ for a determination on that issue. During the proceedings on remand, BHC raised the issue of whether the Commissioner now has subject matter jurisdiction to make adjustments to BHC’s rates for the rate years beginning on July 1, 1995 and 1996, based on disallowances to offset employee contributions to BHC’s medical benefit plan during the reporting years ending September 30, 1994 and 1995.
III.
CONTENTIONS OF THE PARTIES
A. BHC’s Contentions
BHC first contends that in a contested case arising out of a rate appeal determination, the Commissioner lacks authority to make a rate adjustment that was not the subject of a prior field audit determination. Put another way, the facility argues that prior rate adjustment findings by a field auditor are a condition precedent to any future rate adjustment by the Commissioner relating to the same subject matter.
A related second contention is that BHC’s rates for the rate years beginning July 1, 1996 and 1996, were established by the field audit. Any further disallowance of costs recommended by the ALJ and made by the Commissioner represents establishment of new rates for those rate years in a way not permitted by statute.
BHC’s third argument is somewhat more intricate. It contends that even if the Commissioner generally has authority to make a rate adjustment that was not the subject of a prior field audit determination, that authority cannot be exercised here because the initiation of this contested case nullified the prior appeal determination. It argues that when the appeal determination became nullified, the scope of the contested case was limited to the field audit report, and that the field audit report made no mention of an adjustment for employee contributions. BHC argues that the Department could have placed the adjustment for employee contributions at issue in a subsequent contested case by remanding the matter to a field auditor as part of the appeal determination. But because it failed to do so, such an adjustment cannot now be considered in this contested case.
Finally, BHC contends that it is now too late to remand the matter to the field auditor for findings on employee contributions to its self-insured medical benefit plan during the reporting years ending September 30, 1994 and 1995. In support of that contention, it cites a rule that only authorizes the Department to perform field audits on the four most recent cost reports. It also argues that a general rule of law that permits agencies to reopen matters to correct mistakes is inapplicable because of the prejudice it will cause to BHC.
B. The Department’s Contentions
The Department notes that a rate appeal is a two-step process, involving an initial internal administrative review and a subsequent contested case, if the provider disputes the results of the internal review. It contends that what was at issue at the internal review stage in this case was the allowable costs for BHC’s self-insured medical benefit plan during the reporting years ending September 30, 1994 and 1995. And it argues that it was appropriate for the Department to consider whatever evidence might be germane to that issue, including new evidence submitted during the course of the initial review. It further argues that there is nothing in statute that prevents the Department from correcting an erroneous cost allowance during the appeal stage of rate determination.
The Department further argues that the effect of the statutory provision nullifying an appeal determination upon initiation of a contested case is not to revive an earlier field audit report as the sole basis for appeal. Rather, the legislature intended the effect of the nullification provision to be that the ensuing contested case proceeding would still be an opportunity for de novo review of all rate adjustments placed in issue by the Notice of Hearing, including any made for the first time in the prior appeal determination.
The appeal determination contained two adjustments that had not been addressed in the prior field audit report¾(1) an upward adjustment of costs to reflect the costs of a stop loss policy; and (2) a downward adjustment to reflect employee contributions to BHC’s self-insured medical benefit plan. The Department argues that BHC’s position is inconsistent because it claims the benefit of the former without the detriment of the latter. Finally, the Department contends that it does possess common law authority to correct a previously incorrect determination of allowable costs.
IV.
STATEMENT OF THE ISSUES
1. In determining a final MA reimbursement rate for a nursing facility, may the Commissioner make an adjustment that was not apparent during a field audit but that only became apparent during a subsequent appeal determination?
2. Does initiation of a contested case proceeding prevent rate adjustments made for the first time in the prior appeal determination from being considered and resolved de novo as part of the contested case?
3. Was it necessary for the Department to remand an adjustment to BHC’s rates, made for the first time during the appeal determination, back to the field auditors to confirm in order to give effect to that rate adjustment?
4. Does the Commissioner have inherent authority, in a contested case proceeding, to correct an error made by field auditors that did not become apparent until a subsequent appeal determination?
5. What is the correct amount of the disallowances to BHC’s cost reports for the rate years under appeal?[45]
V.
ANALYSIS
There are certain things relevant to this proceeding that are not genuinely in dispute. In conducting their field audit of BHC’s cost reports for the reporting years ending September 30, 1994 and 1995, the Department’s auditors erroneously failed to subtract employee contributions from BHC’s reported costs for its self-insured medical benefit plan.[46] The Department did not recognize that error until BHC submitted a schedule of employee contributions to the plan for those rate years in response to a request by the Department for additional information during the administrative review stage of BHC’s appeal.[47]
BHC does not dispute that employee contributions to its self-insured medical benefit plan are not allowable costs under Rule 50. Its position is that because of procedural errors that the Department made during the audit and appeal processes, it can no longer disallow them.
A. The Commissioner has subject matter jurisdiction and authority to make a rate adjustment that was not addressed in an earlier field audit but that only became apparent during a subsequent appeal determination.
Central to BHC’s position that the ALJ and Commissioner lack authority to make a rate adjustment that was not specifically addressed in the earlier field audit is the facility’s interpretation of Minn. Stat. § 256B.50, subd. 1a (a), which provides that for purposes of Minn. Stat. § 256B.50, which governs provider appeals from desk and field audit determinations:
(a) "Determination of a payment rate" means the process by which the commissioner establishes the payment rate paid to a provider pursuant to this chapter, including determinations made in desk audit, field audit, or pursuant to an amendment filed by the provider.
BHC interprets the statute to mean that a provider’s “payment rate” can only be established in a “desk, audit, field audit, or pursuant to an amendment filed by the provider.” In essence, the facility argues that by enacting this statute, the legislature intended to establish desk audits, field audits and amendments filed by providers as the exclusive methods for determining provider payment rates and to exclude any other processes by which adjustments can be made to a provider’s payment rate. This is not a correct interpretation of Minnesota Statutes for several reasons.
First of all, none of the processes described in Minn. Stat. § 256B.50, subd. 1a (a) establishes a provider’s reimbursement rate in the first instance. Minn. R. pt. 9549.0041, subp. 11, requires the Commissioner to provide facilities with notice by May 1st of each year of the “total payment rate” that will be effective during the following rate year. That total payment rate is basely solely on a facility’s cost report, and it is a provisional rate because it is subject to later retroactive adjustments. Therefore, the three processes described in Minn. Stat. § 256B.50, subd. 1a (a)¾desk audits, field audits and amendments filed by providers¾are not processes for determining rates. Rather, they are processes by which the initial total payment rate can be retroactively adjusted. So, the precise question that Minn. Stat. § 256B.50, subd. 1a (a) poses is whether the legislature intended the three processes listed in that paragraph to be the exclusive ways in which the initial total payment rate can be retroactively adjusted. The language of the statute does not compel that conclusion. It states that the process by which rates are determined by retroactive adjustment includes desk audits, field audits, etc. But the language does not exclude the possibility that the Commissioner can make retroactive adjustments to ensure that a provider is only being reimbursed for allowable costs at some other stage of the rate determination process. If Minn. Stat. § 256B.50, subd. 1a (a), allows for that possibility, Minn. Stat. § 256B.421, subd. 4, confirms it:
Subd. 4. Final rate. "Final rate" means the rate established after any adjustment by the commissioner, including but not limited to adjustments resulting from cost report reviews and field audits. [Emphasis supplied.]
That statutory provision evidences a clear legislative intent to allow the Commissioner to establish a facility’s reimbursement rate by making appropriate rate adjustment that do not result from desk audits and field audits. That intent is strengthened by many other provisions of Rule 50, which are directed toward ensuring that providers are only reimbursed for costs that are allowable under applicable statutes and rules.
A closely related contention of BHC’s is that neither the ALJ nor the Commissioner have authority to “set rates” in a contested case proceeding that include an adjustment that was not made in a field audit. There are several flaws in this argument. First of all, ALJs never “set rates” or make rate adjustments in a contested case proceeding. ALJs only offer conclusions and make recommendations to the Commissioner about rates and rate adjustments that the Commissioner may reject or modify.[48] And as Minn. Stat. § 256B.421, subd. 4, indicates, no determination of a facility’s rate is final until the Commissioner finishes making any retroactive adjustments that are required by statute or rule, and that clearly includes adjustments at issue in a contested case proceeding. In short, the Commissioner still does have the authority to set BHC’s final reimbursement rates for the rate years beginning July 1, 1995 and 1996.
B. Initiation of a contested case proceeding does not prevent rate adjustments made for the first time in the prior appeal determination from being considered and resolved de novo as part of the contested case.
Minn. Stat. § 256B.50, subd. 1a (c) provides that “[a] contested case demand for an appeal item nullifies the written appeal determination issued by the commissioner for that appeal item.” The effect of that provision is ambiguous. As BHC argues, it could mean that the appeal determination no longer defines what is at issue in the contested case proceeding, and that nullification revives the earlier audit report as the sole basis for what issues can be addressed. Or it could mean that the appeal determination still establishes the matters at issue in the contested case proceeding but no longer establishes the outcome of those issues, as would be the case if there were no request for a contested case. The latter interpretation would be in accord with the Department’s position that in a contested case the issues raised by an appeal determination are to be considered de novo.
BHC’s view that a request for a contested case “nullifies” the appeal determination in the sense that it is deemed to have never occurred and confines the issues to what was in the field audit report only makes sense if one accepts its position that new rate adjustments can only be made at the field audit stage and never at the appeal determination stage. It does not make sense if Rule 50 allows the Department to make new rate adjustments for the first time in an appeal determination. An interpretation of Minn. Stat. § 256B.50, subd. 1a (c) that would essentially prevent parties from addressing, de novo, new rate adjustments made in appeal determinations in a subsequent contested case proceeding would render the right to a contested case meaningless in those cases. Since the ALJ has concluded that the Commissioner has the authority to make a rate adjustment determined by an appeal determination that was not covered by a field audit, the ALJ also concludes that the Department’s interpretation of Minn. Stat. § 256B.50, subd. 1a (c) is the correct one. In short, initiation of a contested case proceeding nullifies the appeal determination to which it relates only to the extent that the appeal determination no longer resolves the adjustments that it addressed. But initiation of a contested case proceeding does not prevent rate adjustments made for the first time in the prior appeal determination from being considered and resolved de novo as part of the contested case.
C. Remand to the field auditors of the rate adjustment for employee contributions to BHC’s medical benefit plan was unnecessary in this case.
BHC also contends that in order to preserve its option to make adjustments for employee contributions, the Department was obliged, as part of its appeal determination, to remand this matter back to the field auditors to make that adjustment. And BHC goes on to argue that it is now too late to do that. In support of these contentions, the facility cites Minn. R. pt. 9549.0041, subp. 13B, which provides, in part, that:
[f]ield audits may cover the four most recent annual cost reports for which desk audits have been completed and payment rates have been established.
In other words, BHC argues that the time to reopen the audits for the reporting years ending September 30, 1994 and 1995, expired a long time ago. But it is unnecessary for the ALJ to address that here or whether it might ever be necessary for an appeal determination to include a remand to auditors with instructions to them to make further findings and consider further adjustments. Such a remand was neither legally nor operationally necessary in this case. The ALJ has concluded that the Department had the legal authority to make rate adjustments for the first time for the cost of a stop loss policy and for employee contributions to its medical benefits plan in its appeal determination. So a remand to the field auditors was legally unnecessary. BHC does not contend that the amount of those adjustments is incorrect, that the information on which they were based was inadequate or incorrect, or that the employee contributions were actually allowable costs under Rule 50. So a remand to the field auditors was also operationally unnecessary.
D. The Commissioner also has inherent authority to correct the field auditors’ errors.
Both BHC and the Department agree that “an administrative agency has a well-established right to reopen, rehear, and redetermine the matter even after a determination has been made” so long as due and prompt notice is first given to interested parties.[49] The Department’s field auditors missed the employee contribution error when they completed their audit report on May 13, 1998.[50] But the error became apparent to the Department on June 18, 1999, when it received BHC’s response to a request for a schedule of employee contributions.[51] BHC received written notice of the error less than a month later when the Department issued its appeal determination on July 9, 1999.
But relying on Nieszner v. Department of Jobs and Training,[52] BHC argues that there is an exception to that general rule when correction of the error prejudices the claimant. In Nieszner, an employee of the Department of Jobs and Training was terminated from his employment and applied for unemployment insurance benefits, which were benefits administered by the same department. The department denied the application for benefits, and the employee appealed the denial to an appeal referee who was employed by the department. However, the referee ruled in favor of the former employee. The department then let the time to appeal that adjudication expire but subsequently referred the case to a second referee on a request for redetermination. The second referee ruled in favor of the department and denied the benefits. In reversing the denial of benefits by the second referee, the prejudice cited by the Court of Appeals was not merely that the employee lost in the second adjudication, it also noted the inherent potential for bias when the department acted as both employer and adjudicator. The court concluded that when confronted with such a situation, “the reviewing court ‘probably should review with special intensity.’”[53]
BHC points to nothing in this case that even remotely resembles the prejudice that Mr. Nieszner was exposed to by the department’s “correction” of the first decision. The only prejudice it cites here is that allowing the Department to make the adjustments in question will require BHC to repay a large amount of money. But that is money that BHC concedes it was not legally entitled to keep, and it is money that BHC has had the use and benefit of for nearly ten years. Moreover, unlike Mr. Nieszner, BHC has had a full and fair opportunity to challenge the correctness of the rate adjustments at issue now in an unbiased tribunal. The Notice of Hearing generally placed at issue “DHS’s disallowance of costs for a self-insured employee health plans (sic) for the 1995 and 1996 rate years.”[54] The Department also specifically discussed an adjustment to offset employee contributions in the memorandum it submitted in support of its September 27, 2002 motion for summary disposition.[55] And BHC also specifically addressed that issue in its response to the that motion.[56]
In summary, BHC has not been subjected here to the kind of procedural prejudice with Due Process implications that characterized the Nieszner case. And it has therefore not established a reasonable basis for departing from the general rule that agencies have a right to correct errors made in the course of an administrative proceeding. And that right represents yet another reason to interpret Rule 50 as allowing the Commissioner to make an adjustment in a contested case hearing that was erroneously not considered or made in an earlier field audit.
E. The precise amounts of the disallowances to BHC’s reported costs for the reporting years ending September 30,1994 and 1995 are $159,400.88 and $8,636.56, respectively.
The Commissioner remanded to the ALJ the specific issue of the correct amount of disallowances to BHC’s reported costs. The ALJ examined the record upon remand and determined that, although the parties apparently had all of the information necessary to calculate the precise amounts of the disallowances, neither party had included that information in the record. Consequently, the ALJ ordered that the administrative record be supplemented with that information.[57] The ALJ also directed the parties to submit “their respective calculations of the precise amounts of the disallowances.”
The parties submitted the information requested, thereby providing the ALJ with the information necessary to calculate the precise amounts of the disallowances. BHC calculated those amounts to be zero, based on its assertion that the Commissioner no longer had authority to make rate adjustments based on disallowances of employee contributions to the BHC medical benefit plan during the reporting years in question. The Department calculated the adjustments required to BHC’s 1994 reported costs to be $159,400.88, and to BHC’s 1995 reported costs as $8,636.56.[58]
The Department calculated total allowable insurance costs by adding claims paid, administrative fees, and stop loss insurance premiums; offsetting employee contributions; and adjusting for any claim refunds.[59] This is consistent with the Order of the Commissioner of Human Services in this matter, dated August 4, 2003, accepting the recommendations of the ALJ.[60] The Department then multiplied that amount by an adjustment factor, to arrive at the Revised Allowable Amount for BHC self-insurance costs.[61] The Department determined the total disallowance by subtracting the Revised Allowable amount from the amount that Benedictine reported in its cost reports.[62] Thus, the Department determined the precise amount of the disallowances to BHC’s reported costs for the 1994 and 1995 reporting years to be $168,037.44. The ALJ adopts the Department’s calculations and recommends that the Commissioner accept them as the precise amounts of the disallowance.
VI.
Conclusion
For the reasons stated above, the ALJ recommends that the Commissioner deny the motion for partial summary disposition that was filed by BHC on September 13, 2004. The ALJ further recommends that the Commissioner find that the precise amount of the disallowances is $168,037.44.
B.H.J
[1] The Notice of Hearing also raised the issue of whether the Commissioner should affirm the Department’s classification of certain supply and salary costs for the same rate years. BHC subsequently withdrew its appeal of that rate adjustment.
[2] Minn. Stat § 14.61. (Unless otherwise specified, all references to Minnesota Statutes are to the 2002 edition.)
[3] See Minn. Stat. § 14.62, subdivision 2a.
[4] See Minn. Stat. §§ 256B.41 through .50.
[5] See Minn. R. pts. 9549.0010 through .0080. (Unless otherwise specified, all references to Minnesota Rules are to the 2003 edition.)
[6] See Minn. Stat. § 256B.421, subd. 6, and § 256B.431, subd. 1. The operating cost rate is only one component of a nursing facility’s MA reimbursement rate. Other components are a property-related payment rate, and a real estate tax and special assessments payment rate. See Minn. R. pt. 9549.0070, subp. 1.
[7] Minn. Stat. § 256B.421, subd.12.
[8] Minn. R. pt. 9549.0041, subp. 1.
[9] See generally Minn. Stat. § 256B.421, subd.8, and more specifically Minn. R. pt. 9549.0040.
[10] Minn. R. pt. 9549.0041, subp. 11.
[11] Minn. R. pt. 9549.0041, subp. 13.A.
[12] Minn. R. pt. 9549.0041, subp. 13.
[13] In Minn. Stat. § 256B.48, subd. 1 (a), which prohibits nursing facilities from charging private paying residents a different rate than the rate charged to MA eligible residents, the legislature uses the term “prospective desk audit rate” to describe the result of the desk audit. That appears to be the only use of that term in chapter 256B.
[14] Minn. R. pt. 9549.0070, subp. 1.
[15] Minn. Stat. § 256B.421, subd.11.
[16] Minn. Stat. § 256B.421, subd. 2. Also, see generally Minn. Stat. § 256B.431.
[17] Minn. R. pt. 9549.0041, subp. 13.A provides that field audits are mandatory: “The department shall subject all reports and supporting documentation to desk and field audits to determine compliance with parts 9549.0010 to 9549.0080.”
[18] Id.
[19] Minn. Stat. § 256B.50, subds. 1 and 1b; Minn. R. 9549.0080.
[20] Minn. Stat. § 256B.50, subd. 1c (B).
[21] Minn. Stat. § 256B.50, subd. 1c (a).
[22] Minn. Stat. § 256B.50, subd. 1c (c).
[23] Id.
[24] Minn. Stat. § 256B.50, subd. 1c (d).
[25] Exhibit K to the Affidavit of Diane K. Krueger (See Item 4 of the administrative record for remand. That affidavit is hereinafter referred to as the “First Krueger Affidavit.”)
[26] Exhibit L to First Krueger Affidavit.
[27] First Krueger Affidavit at ¶ 5.
[28] Id. at ¶¶ 6 and 7.
[29] Id. at ¶ 8.
[30] Exhibit L to the First Krueger Affidavit; see also ¶ 12 of that Affidavit.
[31] Exhibit E to the First Krueger Affidavit.
[32] Exhibit N to the Second Affidavit of Diane Krueger (filed in these proceedings on remand on July 26, 2004, and hereinafter referred to as “Second Krueger Affidavit.”)
[33] Exhibit O to Second Krueger Affidavit.
[34] See Minn. Stat. § 256B.50, subd. 1c (a).
[35] Exhibit F to First Krueger Affidavit.
[36] Id.
[37] Item 2 of the administrative record for remand.
[38] Id.
[39] The Department filed a Motion for Partial Summary Disposition, solely addressing the issue of the disallowance of costs for the self-insured employee health plan. After BHC withdrew its appeal relating to classification of supply and salary costs, the health plan disallowance became the only issue remaining in this case. The ALJ therefore treated the Department’s motion as a motion for complete summary disposition.
[40] See Department’s Motion for Partial Summary Disposition, which is included in Item 4 of the administrative record for remand.
[41] See p. 7 of the Department’s Memorandum in Support of Motion for Partial Summary Disposition, which is also included in Item 4 of the administrative record for remand. So, the Department placed the appeal determination’s adjustment to offset employee contributions at issue in its motion for summary disposition.
[42] See pp. 10-11 of Memorandum of Benedictine Health Center in Opposition to Respondent’s Motion for Summary Disposition, which is included in Item 5 of the administrative record for remand.
[43] Item 10 of the administrative record for remand.
[44] Id.
[45] The Commissioner’s remand order directed the ALJ to determine the “specific issue” of “the precise amounts of the disallowances for the reporting years ending September 30, 1994 and 1995.” (Item 10 of the administrative record for remand) In its memorandum accompanying the pending motion, BHC argues that if the ALJ concludes that the Commissioner still has subject matter jurisdiction and authority to make the rate adjustments currently at issue, there is still another issue that the ALJ must resolve. BHC asserts that it began participating in the Department’s alternative payment system (APS) starting with the rate year beginning on July 1, 1997. It contends that an issue still exists about the effect that any disallowances for those two reporting years may have on BHC’s reimbursement rates in subsequent rate years in light of its participation in ABS. (BHC’s Memorandum in Support of Motion for Partial Summary Disposition for Lack of Subject Matter Jurisdiction, note 2 at pp. 6-7) The Commissioner only directed the ALJ to determine the specific issue of the “precise amounts of the disallowances” for the two reporting years in question. The Commissioner did not direct or empower the ALJ to determine the rates for any subsequent rate years or to determine the amounts of any overpayments for which BHC may be liable. If those issues are in dispute, BHC will have to raise them with the Commissioner.
[46] Second Krueger Affidavit at ¶ 5.
[47] Exhibit F to First Krueger Affidavit.
[48] See Minn. Stat. § 14.62, subd. 1.
[49] Minnesota ex. rel. Turnbladh v. District Court, 107 N.W.2d 307, 313 (Minn. 1960); Anchor Casualty Co. v. Bonsgards Co-Operative Creamery, 91 N.W.2d 122, 126 (Minn. 1958) (Cited by both parties.)
[50] Exhibit L to Second Krueger Affidavit.
[51] Exhibits N and O to Second Krueger Affidavit.
[52] 499 N.W.2d 832 (Minn.App. 1993).
[53] Id. at 836.
[54] Item 2 of the administrative record for remand.
[55] See p. 7 of the Department’s Memorandum in Support of Motion for Partial Summary Disposition, which is also included in Item 4 of the administrative record for remand. So, the Department placed the appeal determination’s adjustment to offset employee contributions at issue in its motion for summary disposition.
[56] See pp. 10-11 of Memorandum of Benedictine Health Center in Opposition to Respondent’s Motion for Summary Disposition, which is included in Item 5 of the administrative record for remand.
[57] Order of Administrative Law Judge Bruce Johnson in this matter dated June 21, 2004. The Order stated that “the record will be opened for the submission of documents relating to the ‘precise amounts of the disallowances’ that the parties previously made available to each other during the rate review process but did not subsequently include in the hearing record of this proceeding.”
[58] See Exhibit R to Second Krueger Affidavit. The Department provides a thorough explanation of its calculations, and the information on which those calculations are based, in the Second Affidavit of Diane Krueger.
[59] Second Krueger Affidavit at ¶ 8.
[60] Item 10 of the administrative record for remand.
[61] Second Krueger Affidavit at ¶ 8.
[62] Second Krueger Affidavit at ¶ 8.