8-1800-17731-2
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE DEPARTMENT OF HUMAN SERVICES
|
In
the Matter of the Rate Appeal of Sholom Home East |
RECOMMENDATION ON
MOTIONS FOR SUMMARY
DISPOSITION |
The above-entitled matter is before Administrative
Law Judge Linda F. Close on the motion of the Department of Human Services (the
Department or DHS) for partial summary disposition and the cross motion of
Sholom Home East (Sholom Home or Sholom) for summary disposition. On October 5, 2007, the ALJ heard oral
argument on the motions. Erika S.
Sullivan Assistant Attorney General,
Following oral argument, it was agreed that the
evidentiary hearing, which had previously been set for November 12, 2007, would
be postponed until December 10-11, 2007.
This was done to afford the Parties time to discuss settlement following
receipt of this Recommendation.
Based on the record of the proceedings, including the
memoranda and oral argument of counsel, the Administrative Law Judge
respectfully RECOMMENDS:
1.
That the
Department’s motion for partial summary disposition be GRANTED.
2.
That the motion
of Sholom Home for summary disposition be DENIED.
Dated
this 22nd day of October 2007.
_s/Linda
F. Close___________
LINDA
F. CLOSE
Administrative
Law Judge
NOTICE
This
report is a recommendation, not a final decision. The Commissioner of Human Services (the
Commissioner) will make the final decision after a review of the record. The Commissioner may adopt, reject or modify the
Recommendations in this report. The
parties have 10 calendar days after receiving this report to file Exceptions to
the report. At the end of the exceptions
period, the record will close. Parties
should contact Kevin Goodno, Commissioner, Department of Human Services,
Under
Minn. Stat. § 14.62, subd. 1, the agency is required to serve its final
decision upon each party and the Administrative Law Judge by first class mail
or as otherwise provided by law.
MEMORANDUM
Background
In 2000, the Legislature enacted
changes to the bed licensure statutes to encourage facilities to reduce the
number of nursing facility beds. The
changes permit facilities to lay away beds for up to five years, during which
time there are no licensing or surcharge fees for the beds on layaway.[7] Reimbursement changes were also made so as to
allow both Rule 50 and APS facilities a rate increase for qualifying bed layaways.[8] Prior to 2000, this rate increase was
available only upon delicensure of beds in Rule 50 facilities.[9] The 2000 changes made a rate increase
available also to APS facilities upon delicensure of beds.[10]
A facility that lays away or delicenses
beds must use the space thereby made available in one of three ways: to reduce
the number of beds per room; to provide more common space for the use of the
facility; or to perform other activities related to the operations of the
facility. If the facility does not do this, its property rate increase must be
reduced. [11]
Facts
In 2000, Sholom Home had 285 licensed
beds. That year, it began a series of
layaways, transfers, and delicensures. By
October 2002, it had 139 beds and 102 beds on layaway. Following a series of layaways and
delicensures, Sholom Home requested and received increases in its payment
rates.[12] In 2003, the facility delicensed 100 of the
laid away beds, leaving the facility with 139 licensed beds.[13]
While Sholom Home was making changes
in 2001 and 2002, the Department made inquiries about the facility’s use of space
made available through layaways and delicensures. A Department auditor toured the facility and
met with its counsel and management. In
August 2002, the auditor informed Sholom Home that its claimed use of storage
space would be allowed. By letter, the
auditor explained that facility space claimed as “vacant” was actually being
used for some storage and would therefore be allowed. In addition, all claimed storage space was
allowed. The reason given was that the
facility was eligible to return to service all of the 102 beds that were then
on layaway. This fact justified the
facility in retaining a large amount of space for storage.[14]
After Sholom Home made the 2003
changes to the number of licensed beds, the Department notified the facility
that a field audit would be conducted. In
November 2003, an auditor toured the facility.
The auditor found that 3,171 square feet of the facility was empty by
virtue of the delicensures, and 10,314 square feet was being used for storage.[15] The auditor issued audit findings disallowing
a rate increase based on the vacant space and reducing by one-half the storage
space eligible for the increase.[16] These disallowances reduced Sholom Home’s
rate by $1.40, effective February 1, 2003.[17] Sholom Home appealed the rate adjustment,
resulting in this proceeding.
The
Parties’ Motions
The Department’s motion is for partial
summary disposition. It argues that, as
a matter of law, Sholom Home is subject to a rate reduction based on its
leaving vacant 3,171 square feet of space following its delicensure of
beds. Sholom Home argues that the vacancy
issue, as argued by the Department, entails disputed facts, and that the
Department’s summary disposition motion should therefore be denied.
Sholom Home’s motion for summary
disposition is more comprehensive. The
facility argues that it is entitled to summary disposition because the statutes
clearly provide for a rate increase following delicensure calculated in
accordance with a statutory formula. Sholom
argues that DHS has ignored the statutory mandate for APS facilities and
substituted Rule 50 criteria in determining the rate adjustment. In addition, Sholom Home objects to the
adjustment based on an alleged change in position by DHS between the time beds
were laid away and after they were delicensed.
Sholom Home further argues that DHS has, in essence, audited its
historical costs in making the adjustment.
It may not do this, Sholom Homes argues, because the statute exempts APS
facilities from audits of historical costs.
Finally, Sholom Home argues that DHS has unlawfully reduced Sholom Home’s
rates, which is not allowed under the statutes.
The statues, it argues, provide only for rate increases, not decreases,
following delicensure.
Standard
For Summary Disposition
Summary judgment is appropriate where
there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law.[18] A
genuine issue is one which is not sham or frivolous.[19] A material fact is a fact the
resolution of which will affect the outcome of the case.[20] Where no factual disputes are raised,
the resolution of which might clarify the application of law, summary judgment
is proper.[21]
Here, both Parties ask the ALJ to
interpret statutes in their favor.
Interpretation of statutes is a question of law.[22] Rules
of statutory construction require a court to look first at the specific
statutory language and be guided by its natural and most obvious meaning.[23] When the language of a statute is unambiguous,
the court must apply its plain meaning.[24] A
statute is ambiguous only when the language is subject to more than one
reasonable interpretation.[25] When
the meaning of statute is doubtful, deference should be given to the
construction placed upon it by the agency charged with its administration,
especially when the agency’s interpretation is a long-standing one.[26]
The
Department’s Summary Disposition Motion
The Department argues that
post-delicensure space must be put to one of the three uses set forth in Minn.
Stat. § 256B.431, subd. 30 (h). The
permitted uses all further facility operations.
If the property made available through layaways and delicensures is not
so used, then the Department must reduce the property rate increase by a ratio
of the unqualifying space to the total footage resulting from layaways and
delicensure.
Following the delicensures, Sholom
Home had in excess of 3,000 square feet of vacant space. The Department posits that, by definition,
vacant space is not sued for facility operations. The ALJ agrees with the Department.
Section 256B.431, subd. 30 of the
statutes provides for the calculation of rates following layaways and
delicensure. Subparagraph (h) of
subdivision 30 provides as follows:
A facility that does not utilize the space made
available as a result of bed layaway or delicensure under this subdivision to
reduce the number of beds per room or provide more common space for nursing
facility uses or perform other activities related to the operation of the nursing
facility shall have its property rate increase calculated under this subdivision
reduced by the ratio of the square footage made available that is not used for
these purposes to the total square footage made available as a result of bed
layaway or delicensure.
The ALJ concludes that subdivision 30
(h) requires a facility to make an affirmative use of space resulting from
delicensure. The language of the statute
is clear and unambiguous. A facility
must “utilize” space, and it must do so through affirmative acts to “reduce,” “provide,”
or “perform.” A common sense reading of
the statute compels the conclusion that leaving space empty does not “utilize”
that space.
Sholom Home admits that, following
delicensure, it left space vacant. It
further admits that, even today, the amount of vacant space is nearly 3,200
square feet, which is actually slightly more than the amount found during the
2003 audit.[27]
By definition, Sholom was not making an
affirmative use of the space in 2003 and, by its own admission, still has
roughly the same amount of vacant space.
As a consequence of leaving space vacant, Sholom Home’s property rate
increase is subject to reduction using the ratio set forth in subparagraph (h)
of subdivision 30, quoted above. That is
what the Department concluded, and the ALJ agrees with that conclusion.
Sholom Home has asserted several arguments
to rebut the Department’s position. It
argues that the November 2003 field audit yielded a “snapshot” of its space
usage. In using this snapshot, the Department
has unfairly and arbitrarily determined that 3,174 feet of space is vacant,
according to Sholom. Sholom Home argues,
in essence, that the Department must identify specifically what space is vacant
and show that it has been vacant since the audit. However, Sholom Home’s responses to requests
for admission confirm that, even today, nearly 3,200 square feet of space is
vacant.[28] Moreover, if the findings in November 2003
were really inaccurate, Sholom Home had ample opportunity to show the
Department that its snapshot was inaccurate.
It has not done so and instead has admitted that it has made no
affirmative use of the space. Finally, Sholom’s
argument, if accepted, would allow a facility perpetually to avoid the
consequences of leaving space empty through the simple ruse of continuously shifting
vacancies from one area of the facility to another. Such a result makes no sense.
Sholom also argues that the statute
does not really require affirmative use of property resulting from
delicensure. It asserts that the intent
of the statute is to preclude any double-dipping by a facility by converting
space created by delicensure to an income-producing area, while still claiming a
property rate increase. In support of
this argument, Sholom Home references a June 2000 DHS Bulletin explaining the
provisions of subdivision 30.[29] Sholom claims that the Bulletin interprets
the law to prevent rate increases only as to property used to produce revenue. A fair reading of the entire Bulletin,
however, disproves Sholom’s claim. The
Bulletin’s reference to income-producing use of space made available through
layaway is merely a single example of space not being utilized by the facility
for nursing home operations. The
Bulletin does not suggest that the sole example constitutes an exhaustive
list.
Sholom Home also argues that the
Department’s audit findings are contrary to its history of allowing a property
rate increase while beds were laid away storage space. The undisputed facts, however, show that the
Department has maintained a consistent position as the facts have changed. In 2002, when Sholom Home had 102 beds on
layaway, Sholom retained a significant amount of space for storage. Also, it characterized some space as being
vacant during that time. When the
Department audited the facility, it found that Sholom Home did not really have
vacant space. What it had was storage
space that was not completely full. In
addition, the facility was then within the window of time when it could have
returned the laid away beds to service.
This fact justified allowing considerable storage space, since Sholom
might want to re-utilize stored items if laid away beds were re-licensed. The language of the Department’s audit letter
is clear on these points.[30]
Contrary to Sholom’s argument, the
Department’s interpretation has not changed.
It is the facts that have changed.
In 2002, the Department concluded that space characterized as vacant was
not vacant. In 2003, the Department
found space that was truly vacant. The
amount of the vacant space is not materially in dispute.[31] Furthermore, in 2002, Sholom might have
re-licensed laid away beds, thereby justifying a large amount of storage
space. Once Sholom’s laid away beds were
no longer eligible to be re-licensed, its need for storage space arguably diminished. As discussed further below, the issue of
storage space, unlike the issue of vacant space, presents fact questions for
hearing.
Finally, Sholom asserts that the
vacant space is being used affirmatively in that it is an integral part of the
physical plant. Vacant space must be
heated and cooled and otherwise maintained.
Therefore, the vacant space actually is being used for an activity
related to the operation of the facility, Sholom argues. The ALJ finds this argument reaches too
far. The statute sets forth three
methods of utilizing space made available because of delicensure. All three are stated in the affirmative: the
facility must “reduce,” “provide,” or “perform.” Leaving space empty entails no action at
all. The statute contemplates
affirmative conduct by the facility, and Sholom has not conducted any activity
so as to satisfy the statute. As a
result, the Department was correct to determine the rate increase following
delicensure by reducing the increase in accordance with the ratio set forth in
Minn. Stat. § 256B.431, subd. 30 (h).
Because there are no material facts in
dispute relating to vacant space and the application of the law as interpreted
is clear, the ALJ recommends that the Commissioner grant the Department’s
motion for summary disposition as to the issue of vacant space.
Sholom
Home’s Summary Disposition Motion
Sholom Home maintains that it is
entitled to summary disposition for several reasons: the Department’s audit is
based on Rule 50 criteria, which are unlawfully being applied to an APS
facility; the Department’s change in statutory interpretation precludes the
audit adjustments; the Department is statutorily barred from implementing a
rate decrease; and the audit is arbitrarily and unlawfully fixed in time. The ALJ recommends Sholom’s motion be denied
as to each of these bases. The ALJ
rejects the legal arguments posed by Sholom Home in support of its motion and
finds that the issue of storage space presents fact issues for an evidentiary
hearing.
Was
the audit unlawfully based on Rule 50 criteria?
Sholom argues that, as an APS facility,
it is exempt from an audit that applies general cost principles of Rule
50. Sholom asserts that the Department’s
audit essentially does this and is therefore unlawful. In support of its argument, the facility
relies on the language of Minn. Stat. § 256B. 434, subd. 10, which provides:
[An APS] facility … is not subject to audits of
historical costs or revenues, or paybacks or retroactive adjustments based on
these costs or revenues, except audits, paybacks, or adjustments relating to
the cost report that is the basis for calculation of the first rate year under
the contract.
The ALJ does not accept Sholom Home’s
argument that the above language exempts it from the audit that the Department
conducted. The argument is neither
factually not legally supportable. In
making the audit adjustments, the Department did not review historical
costs. Rather, it considered the
facility’s current rate as against its use of its property following
delicensure.
The Department correctly notes that
the rate adjustment allowed upon delicensure is actually outside the APS system
of reimbursement. It applies to both
Rule 50 and APS facilities.[32] Following delicensure, a rate reduction must
be calculated if the facility fails to utilize property made available upon
delicensure in one of the three facility operations methods described in the
statute. Any audit of this calculation
is not one of historical costs, but of a present rate determination.
The ALJ also agrees with the
Department that the system implies the authority of the Department to audit the
calculation of the facility’s rate. Implicit in the Department’s authority to
reimburse as provided by law is its authority to conduct an audit to ensure
compliance with the law.
Finally, the purpose of the audit
exemption language applicable to APS facilities is to ensure that only the APS
base year, which is established under Rule 50, is subject to audit of
historical costs, not prior years. The
statute is intended to fix a base year.
It is not a blanket exemption from audit.
Does
a Department change in statutory interpretation preclude the audit adjustments?
As discussed above, Sholom Home
asserts that the Department’s audit is barred because it changed its statutory
interpretation after Sholom Home delicensed beds. This argument suggests factual issues about
which there may be disputes, making summary disposition inappropriate.
In this case, there are no factual
disputes relating to the vacant space.
Prior to delicensure, the Department found there was no vacant
space. Following delicensure, there
was. Neither party disputes the
existence or amount of that vacant space.
Since vacant space was not an issue prior to delicensure,[33]
there can be no claim of a change in the Department’s position about it.
As to storage space, there are factual
disputes. The Department allowed storage
space both before and after delicensure.
As noted above, prior to delicensure, Sholom Home had a right to
re-license laid away beds. This justified
storing equipment that might be used in the event of re-licensure. Following delicensure, the facility no longer
had this right, bringing into question its rate calculation, which claimed in
excess of 10,000 square feet of storage space for a facility that now had only
141 beds. Because of the factual change related
to delicensure, it cannot be said that the Department has so clearly altered
its position that summary disposition in favor of the facility is
justified. In addition, Sholom Home has
not shown that, if there were a change in position, it would be entitled to
summary disposition as a matter of law.
Sholom Home argues forcefully the
reasons for maintaining a large amount of storage space following delicensure. This argument is supported by affidavit.[34] Because this argument presents factual
issues, an evidentiary hearing is appropriate.
Is the Department statutorily barred
from implementing a rate decrease?
Sholom Home argues that it is entitled
to summary disposition because the Department may only increase, not decrease,
its rate. Sholom asserts that it never
asked for a rate increase after delicensure, so that the provisions of
subdivision 30 (h) may not be used to adjust its rate downward.
The ALJ rejects this argument. Subdivision 30 (h) requires that a reduction
in the rate occur when, following layaways or delicensure, a facility fails to
use property for nursing facility operations.
The statute does not time-bar the Department from auditing for
compliance with the statute. Here, the facility
received a rate increase of $3.01, effective October 1, 2001, at the completion
of an August 2002 audit.[35] After the facility delicensed beds in early 2003,
the Department undertook another audit within a few months. Neither the law nor a statute bars such an
audit.
Is the audit arbitrarily and unlawfully
fixed in time, requiring summary disposition in favor of Sholom Home?
Sholom Home’s final argument for
summary disposition echoes its argument that the Department has insufficiently
identified which space is vacant. Sholom
again argues that a “snapshot” in time is not a sufficient basis for audit
adjustments. This argument borders on
fatuous. For a start, the Department
asked to conduct its field audit in September 2003. At Sholom’s request, the Department delayed
the audit to mid-November 2003.[36] Sholom cannot seriously complain that the
timing of the audit was arbitrary when it maintained control over the timing. Moreover, by its nature, any field audit is
fixed in time. For this reason, the
Department invites dialogue about audit issues and adjusts findings in light of
that dialogue. That is what happened
following the August 2002 audit.[37] In addition, at least with respect to vacant
space, virtually nothing has changed between November 2003 and now. The audit conducted four years ago obviously
captured more than a snapshot in time as to vacant space.
Finally, Sholom Home offers no legal
support for the proposition that the Department is confined to a certain time
period for audits. The statute mandates
a rate reduction when a facility fails to use property freed up through
delicensure for facility operations.[38] DHS had no authority to continue paying Sholom
Home a rate to which it was not entitled.
The mechanism for making that determination is an audit. As a matter of law, the Department was
entitled to audit the facility.
Conclusion
For the above reasons, the ALJ
recommends summary disposition in favor of the Department as to the issue of
vacant space. The remaining issue about storage
space requires an evidentiary hearing which has been scheduled for December
10-11.
L. F. C.
[1] See 42 U.S.C. § 1396a(a)(5); 42 C.F.R. §
431.10;
[2] See
[3] See
[4] Minn. Stat. §
256B.434, subd. 4 (c).
[5] See Minn. Stat. § 256B.434, subd. 12.
[6] Affidavit of
James Newstrom ¶ 3.
[7] See Minn. Stat. § 144.071, subd. 4(b).
[8] See Minn. Stat. § 256B.431, subd. 30
(a), subd. 30 (b).
[9] See Minn. Stat. § 256B.431, subd. 3a
(c).
[10] See Minn.
Stat. § 256B.431, subd. 30 (d)
[11] See Minn.
Stat. § 256B.431, subd. 30 (h).
[12] Affidavit of
Diane Krueger ¶ 3.
[13] Affid. of D.
Krueger ¶ 6. Two beds remained on lay
away.
[14] Affid. of D.
Krueger ¶ 6, Ex. A. The Department had
also discovered a technical error in a calculation during this time. The Department corrected the error, which
resulted in a reduction of the rate. The
facility agreed to this change, and it is not in issue. See id.
[15] Affid. of D.
Krueger ¶ 6, Ex. B.
[16] Affid. of D.
Krueger ¶ 6, Ex. C.
[17] Affid. of D.
Krueger ¶ 6, Ex. C.
[18] Sauter v.
Sauter, 244
[19] A & J
Builders, Inc. v. Harms, 288
[20] Zappa v.
Fahey, 310
[21] Holiday
Acres No. 3 v. Midwest Federal Savings & Loan Assn. of
[22] McClain v. Begley, 465 N.W.2d 680 (
[23] Heaslip v. Freeman, 511 N.W.2d 21, 22
(Minn. Ct. App. 1994), rev. denied (Minn. Feb. 24, 1994).
[24] Current Technology Concepts, Inc. v. Irie
Enterprises, Inc., 530 N.W.2d 539 (
[25] American Family Ins. Group v. Schroedl, 616
N.W.2d 273, 277 (
[26] St. Otto’s Home v. State, Dep’t of Human
Servs., 437 N.W.2d 35, 40 (
[27] See Second Affidavit of Diane K.
Krueger, Ex. C.
[28] See id.
[29] Sholom Home
East’s Memorandum in Support of Summary Disposition, Ex. D. Exhibit D follows the Affidavit of Diane K.
Krueger, but is not mentioned in the Affidavit.
[30] See Affid. Of D. K. Krueger, Ex. A.
[31] Sholom
currently has somewhat more vacant space than it did at the time of the
audit. The Department’s lower audit
figure for vacant space favors Sholom and is not significantly different. See Affid.
of D. K. Krueger, Ex. B.
[32] See Minn. Stat. § 256B.431 subd, 3a (c);
subd. 30.
[33] The facility
had characterized space as vacant, but the Department auditor determined that
the space was actually used for storage.
Affid. of D. K. Krueger, Ex. A.
[34] See Affidavit of Barbara Ruppe ¶ 28.
[35] See Affid. of D. K. Krueger ¶ 4-5, Ex. A.
[36] Affid. of D.
K. Krueger ¶ 6.
[37] Affid. of D. K. Krueger ¶ 4-5, Ex. A.
[38] See Minn. Stat. § 256B.431, subd. 30
(h).