HS 88 026 PE

4 1800 1865 2

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA DEPARTMENT OF HUMAN SERVICES

The Department of Human

Services of the State

of Minnesota, FINDINGS Of FACT,

CONCLUSIONS AND RECOMMENDATION

Complainant,

Muriel Humphrey

Residences,

Respondent.

!he above entitled matter came on for hearing before Administrative law

Judge Peter C. Erickson at 9:00 a.m. on Wednesday, November 25, 1981, at the

Office of Administrative Hearings, Minneapolis, Minnesota. the record on this

matter closed on January 12, 1988, the date of receipt of the last post hearing

memorandum.

Wayne G. Faris and John M. Stoxen, from the firm of Oppenheimer, Wolff &

Donnelly, Attorneys at law, 1700 First Bank Building, St. Paul, Minnesota

55101, appeared on behalf of the Minnesota Department of Human Services.

Ronald L. Haskvitz and Joel W. Lavintman, from the firm of Smith, Juster,

Feikema, Malmon & Haskvitz, Attorneys at law, 1000 IDS Center, 80 South Eighth

Street, Minneapolis, Minnesota 55402, appeared on behalf of the Respondent,

Muriel Humphrey Residendes (MHR).

Notice is hereby given that, pursuant to Minn. Stat. 14.61 the final

decision of the Commissioner of Human Services shall not be made until this

Report has been made available to the parties to the proceeding for at least

ten days, and an opportunity has been afforded to each party adversely

a f fected to file except ions and present argument to the Commi ssi oner.

Exceptions to this Report, if any, s ha I 1 be fi led with Commissi oner Sandra

Gardebring, Second Floor, Space Center Building, 444 lafayette Road, St. Paul,

Minnesota 55101.

STATEMENT OF ISSUE

!he issue to be determined in this proceeding is whether the Department of

Human Service% should be estopped from recovering reimbursement paid Lo MHR

for reserved bed days.

Based upon a II of I he pr oreedings here in, the Administ rative law Judge

makes the following:

FINDINGS OF FACT

1. Prior to the commencement of this hearing, the parties entered into a

Stipulation of Facts and Exhibits which constitute the basis for this

litigation, The stipulated facts are set forth below in paragraphs a. through

o. Exhibits referenced in the Stipulation are contained in the record but

will not be duplicated as part of these Findings.

a. The Muriel Humphrey Residences (MHR) are operated

by louise Whitbeck Fraser Community Services, Inc., a

Minnesota nonprofit corporation. The MHR have been

licensed continuously since November 1976, by the Minnesota

Department of Human Services (DHS) and its predecessor, the

Department of Public Welfare, to provide residential care

for mentally retarded men and women over the age of sixteen

years .

b. The MHR consist of three detached buildings

located in Eden Prairie, Minnesota. The names and addresses

of the three bui Idings are as follows : Charlson House,

8151 Preserve Boulevard; Fraser House, 8761 Preserve

Boulevard; Westby House, 8171 Preserve Boulevard.

C. The MHR are facilities of a type commonly referred

to an Intermediate Care Facility/Mental Retardation

(ICF/MR). The MHR were originally licensed in 1916 to

receive medical assistance (MA) reimbursement for (are

provided to MA recipients during the following twelve

months. (Exhibit 1.) !he licensing has been extended

continuously. Copies of the DHS records that detail how

the three MHR buildings have been licensed are attached as

follows: Charlson House, Exhibit 2 (2 pages); Eraser

House, Exhibit 3 (2 pages); Wentby House, Exhibit 4

(2 pages).

d. Prior to February 1980, the three MHR buildings

were licenned an one, 36 bed ICF/MR. Beginning February 1,

1980, and extending throughout the period in question in

this case (July 1983 through February 1986), the MHR were

licensed as three, 12 bed ICF/MR's. Copies of the DHS

licenses issued February 1, 1980, to each of MHR buildings

are attached as follows: Charlson House, Exhibit 5; Fraser

Houne, Exhibit 6; Wentby House, Exhibit 7. Copies of the

ICF/MR provider agreements and Department of Health

Certification notices in force during the period in

question are attached an follows: Charlson House,

Exhibit 8 (6 pages); Eraser House, Exhibit 9 (6 pages);

Westby House, Exhibit 10 (6 pages).

e. Before the change in licensing of the MHR wan

requested in 1980, representatives of the MHR met with

Virginia Presley of DHS who recommended the MHR separately

license its three facilities.

f. This contented case was initiated by issuance of a

Notice of Agency Action by DHS, dated May 1, 1986. A copy

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of the notice and a schedu I e attac bed to the notic e t hd t

detai ls the claim is at tac bed as Exhi bit II ( 3 pages ) .

g. The amount alleged to be in dispute in the Notice

of Agency Action was $32,837.17. This amount wan Calculated

by OHS investigator Thomas L. Neumann after he conducted an

audit of payments received by the MHR between July 1983 and

February 1986, the period in question. Mr. Neumann's audit

showed that the MHR had billed and received payment for

616 days for which OHS alleges the MHR was not entitled to

receive payment.

h. The MHR do not contest the validity of the audit,

except to the extent that the audit purports to recapture

$219.84 for private-pay patient Charles Stevens. The OHS

accepts the MHR contention and has agreed to decrease the

amount sought to be recovered by $219.84. Thus, it is

agreed by both parties that the amount in controversy is

$32,617.33

i. An the Notice of Agency Action (Fxhibit 11)

details, the calculation of the amount sought to be

recovered by OHS is based on the fact that federal law

permits medical ansistance payments for reserved bed days

only if "[T]he State plan provides for such payments and

specifies any limitations on the policy." 42 C.F.R.

447.40.

j . The Minnesota State Plan for reimbursing services

provided to MA recipients allows an ICF/MR to be reimbursed

f or residentia I are even when the resident in absent from

the facility if the resident is absent for a home vi si I ,

camping, or a hospitdl stay. The State Plan, however,

limits reimbursement by requiring that ICF/MR's meet

minimum facility occupancy rates in order to he e I i g ib I e

for reimbursement. This reserved bed day pol icy is set for

[sicl in a OHS long Term Care Bulletin dated April 1978, a

copy of which is attached an Exhibit I S. The reserved bed

day policy is also reprinted in a Long Term Care Bulletin

dated September 1983, a copy of which is attached as

Exhibit 13.

k . OHS mails copies of all Long Term Care Bulletins

to all ICF/Mk providers by fi rst-class mail at the time

such long Term Care Bulletins are issued. The MHR received

copien of exhibils I? and 13.

1. in the long Term Care Bulletins altached as

Fxhibits 12 and 13, the OHS sets forth the following

reserved bed days policy:

Occupancy Rate - the occupancy rate for purpones

of this policy may be calculated separately for

each certified level of care in the facility as

follows:

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(1) Determine the number of day, each certi

fied bed was occupied during the month.

A reserved bed may be considered as an

occupied bed for this purpose.

(2) Total to determine the number of occupied

bed days for the month.

(3) Divide by the number of days in the

current month.

(4) Divide by the number of certified beds to

determine the occupancy rate for the

month.

If the monthly average for the full month occupancy

was 93% or higher (not rounded), the facility may

claim reserved bed days for that month if the other

criteria is met.

NOTE: facilities with 24 or less certified beds

may claim reserved bed days provided that they have

not had d certified bed vacant for the entire

month. A reserved bed may be considered as an

occupied bed for this purpose.

All days for which payment has been made for a

reserved bed shall he counted as actual patient

days for DPW Rule 49 and DPW Rule 52, rate

determinations.

Exhibit 12 at Page 3; see also Exhibit 13 at Page 7.

M. During the period in question, residents were

absent from the MHR buildings on the daten and for the

number of days set forth in Exhibit 14, pages I through 1.

n. The MHR billed the MA program and received payment

of $32,617.33 for days on which residents were absent from

the three MHR buildings. At no time during the period

relevant to this action Was the monthly average for the

full month occupancy below 93 percent. At no time during

the period relevant to this action were there residents

absent from the MHR houses for one month at the name time.

0. The only issues with respect lo reserved hod days

are whether the State of Minnesota should he equitably

estopped from applying the reserved bed day limitations net

forth in Exhibits 12 and 13, and how State rules should he

applied and interpreted.

2. The primary reason given by Ms, Presley (DHS employee) to MHR for

changing licensure status from one license to three licenses wan that in the

event of a fire or other similar catastrophe in one of the buildings, or the

outbreak of a communicdb I e disease, the entire fac i Iity wou Id have Io be shut

down if all operated under a single license. Under Separate licensure, the

unaffected facilities would be able to continue in operation. In addition,

MHR also found that it would be able to operate under less stringent standards

in several areas due to the sepa rate lic ensure of three, I? bed f ac i I it i es, as

opposed to one, 36 bed facility. These standards were in the areas of nursing

staff requirements (see, 42 C.F.R. 442.478 (1985)); dietary service require

ments (see 42 C.F.R. 442.413 (1985)); and emergency lighting requirements

(see, 42 C.F.R. 442.453 (1985)). !here is nothing in the record to indicate

that MHR received any cost benefits or greater reimbursement from the

Department of Human Services due to these less stringent standards.

3. In considering whether to make the licensure change, MHR was

concerned about whether its funding would be affected. Consequently, MHR,

through its Director of Residential Services, Steven Naill, and its Executive

Director, Dr. Robert Kowalczyk, contacted Thomas Neumann, an auditor at the

Department of Human Services, whom they had consulted in the past for answers

to questions related to funding and funding requirements. After the proposed

change in licensure was explained to Mr. Neumann, he advised MHR that it would

have no effect on its level of funding. Neumann further stated that MHR could

continue lo file only one cost report rather than a separate cost report for

each licensed facility. At the time this advice was given, Mr. Neumann was

not aware of the 24-bed or less exception to the 93 percent occupancy rule.

He did not become aware of this provision until 1984.

4. After speaking with Mr. Neumann, MHR made the decision to change its

licensure status from one, 36 bed facility to three, 12 bed facilities. From

February, 1980 through the present, each of the facilities which comprise the

Muriel Humphrey Residences has been licensed as a separate, 12-bed ICF/MR.

MHR has continued to submit one cost report, rather than three, for the three

licensed facilities and has been operated in all meaningful respects as one

facility providing intermediate care.

5. Consistent with Mr. Neumann's advice, the per diem rate reimbursement

remained the same for MHR after the licensure change. MHR thought that

Neumann's statements also applied to the application of the reserved bed day

rule, however.

6 . MHR wan aware of the less than 25 bed exception to the 93 percent

occupancy rule at the time the decision was made to change its licensure

status.

7. After the licensure change, MHR continued its policy of leaving one

bed open per facility for respite care as a service to the county. These

respite beds were nol always occupied, however. In 1986, Steven Naill called

Thomas Neumann to inquire whether or not respite care beds were taken into

consideration when determining compliance with the 93 percent occupancy

requirement. At that time, Mr. Neumann had changed job responsibilities and

become part of the Surveillance and Utilidtion Review Section of the

Department of Human Services. Neumann told Mr. Naill that he would visit MHR

in order to make d determination concerning the respite care beds.

B. During his visit to MHR, Mr. Neumann conducted a complete audit of

the census records and books. As a result of this audit, Mr. Neumann

concluded that for the period from July of 1983 through February of 1986, MHR

billed and received payment for 616 reserved bed days it was not entitled to

receive.

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9. On May 1, 1986, the Department of Human Services sent a Notice of

Agency Action to the Muriel Humphrey Residences alleging that MHR had billed

and received payment for 616 days f or which it was not en t itled to receive

payment. this over payment was calculated to be $32,837.17. this amount was

subsequently reduced by $219.84, resulting an alleged over reimbursement of

$32,611.33,

10. If it in determined that MHR must reimburse the Department of Human

Services the amount alleged to be owing, that reimburnement would have to be

taken out of the current and future operating funds of MHR. this payback

would affect the quality of care MHR would be able to provide.

11. Because of this action taken by the Department, MHR does not currently

offer respite bed accommodations.

12. During the relevant time period herein, MHR operated at a 93 percent

or greater occupancy when that calculation in baned on a total capacity of

36 beds. There was never a time when all three respite beds were vacant for

an entire month at the name time.

Based upon the foregoing Findings of Fact, the Administrative low Judge

makes the following:

CONCLUSIONS

1. The Admininsrative law Judge and the Commissioner of Human Services

have jurisdiction over this matter pursuant to Minn, Stat. sec. 14.50 did

256B.064, subd. 2 (1986).

2 . I he Notice of Hearing was p roper as to form and ton I en t. th e

Department has complied w ith a I 1 other subs tan t ive and proc edura I requ i rements

of law or rule.

3. For the reasons set forth in the Memorandum below, the Department of

Human Services is estopped from claiming reimbursement as alleged herein.

Based upon the foregoing Conclusions, the Administrative law judge makes

the following:

RECOMMENDATION

If IS HEREBY RECOMMENDED that the Commissioner of Human Services issue an

Order dismissing thin matter with prejudice.

Dated this day of February, 1988.

PETER C. ERICKSON

Administrative law Judge

NOTICE

Pursuant to Minn. Stat. 14.62, subd. 1, the agency in required to serve

its f ind I dec i s !on upon each party and the Administ rat ive law Judge by f i rst

c 1 ass ma i 1 .

Reported: taped, No Transcript Prepared.

MEMORANDUM

MHR, for the first time in its responsive brief, challenges the subject

matter jurisdiction of the Department, alleging that neither Minn, Stat.

256B.064, subd, la. or Minn. Rules 9500.1080, subp. 3, 9505.1910 or

9505.1920 apply herein. The Department has objected to Respondent raising

these issues for the first time in its responsive brief. the Judge is not

going to engage in a lengthy discussion of the jurisdictional issue for

several reasons. First, the Respondent stipulated that the only issue to be

tried in this proceeding was the "estoppel" issue. The Judge is aware that it

is horn book law that a party never waives a subject matter jurisdiction

defense. However, that issue has not been fully litigated in this case

because the Department was not put on notice that it would be an issue raised

by the Respondent.

Second, this Judge has already determined in a case with very similar

facts that jurisdiction exists pursuant to Minn. Stat. 256B,064, 4ubd4. la.

and 2 (1986). See, Minnesota Department of Human Services v. Fulton Residence

and--Innovative Homes, Inc. HS 86 -004 PE (Report issued July 20, 1987) The

Commissioner of Human Services issued a final decision affirming this

determination on October 2, 1981. Specifically, the Judge reads the language

contained in Minn. Stat. 256B.064, subd. la. broadly enough to encompass the

factual situation presented herein.

!he central issue tried in this case is whether the Department is estopped

from claiming reimbursement for reserved bed days as alleged herein. MHR

contends that the representations made by Thomas Neumann and its reliance on

those representations, in conjunction with the detriment it would suffer if

the Department were to recover, constitutes a suf ficient basis for equitable

estoppel. !he Department argues that it was not "reasonable" for MHR to rely

on anything Mr. Neumann said to them because Neumann's job responsibilities

did not include the interpretation or enforcement of reserved bed day require

ments. Consequently, he was not in a position to bind the Department on that

issue when he merely stated that MHR's funding would not be changed as a

result of the relicensure.

In order to establish estoppel against the government, a party must show

that representations or inducements were made, upon which that party reasonably

relied, and that the party will be harmed if the claim Of estoppel is not

allowed. Northern Petrochemical Company v. United States Fire Insurance

Company, 277 N.W.2d 408, 410 (Minn. 1979). The government may be estopped if

justice requires, but that principle will not be "freely applied

Mesaba Aviation v, County of Itasca, 258 N.W.2d 877, 880 (Minn. 1977). lo

estop a government agency, some element of fault or wrongful conduc t must be

shown. Ridgewood Development Company v. State, 294 N.W.2d 288, 292 93 (Minn.

1980). A party seeking to estop a governmental agency carries a heavy burden

of proof. Brown v. Minnesota Department of Public Welfare, 368 N.W.2d 906,

910 (Minn. 1985). However, a court will always weigh the public interest

frustrated by the estoppel against the equities in the cane. Id., Residential-

Alternatives v. Department of Human Services, 387 N.W.2d 885, 891 (Minn. App.

Depending on the facts of a specific case, the Minnesota Court of Appeals

has used a balancing test to determine whether the principle of equitable

estoppel should apply. Beaty v. Minnesota Board of Teaching, 354 N.W.2d 466,

471 (Minn. App, 1984); Petition of Halberg Construction and Supply, Inc., 385

N.W.2d 381, 384 (Minn. App. 1986).l In those cases, the Court of Appeals

did not find specific "wrongful conduct" on behalf of the State agencies

involved. Rather, the Court employed a balancing test, weighing the public

interest against the equities shown by the petitioner. the Judge has

concluded that the "balancing" approach should be used herein to achieve a

just result. See also, Brown at 913.

The facts in this case show clearly that if MHR had continued its

operation as a single, 36 bed facility, it would be entitled to the

reimbursement it received for the reserved bed days at issue. It is only

MHR's decision to change its licensure status which resulted in the

disallowance of the reserved bed days reimbursement. MHR's community based

decision to maintain an "open" respite bed in each of the 12 bed facilities

caused it to not meet the requirements of the less than 25 bed exception to

the occupancy rule, At all relevant times herein, MHR fully met the reserved

bed occupancy limit for facilities having over 25 beds. There is no evidence

in the record to suggest that MHR's change in licensure status resulted in any

greater cost savings and/or reimbursement.

Although Mr. Neumann was not the "right" person to seek advice from

concerning all of the implications of relicensure, MHR relied upon his

statement that funding would not be affected due to the licennure change. Mr.

Neumann was a DHS auditor whose responsibilities included calculating and

authorizing per diem rates. If MHR is forced to repay the $32,000 at issue,

those monies will have to come out of future operating funds and result in a

lesser quality of care for residents. A final important factor is that DHS

took no act ion to remedy the mi stake from 1 980 Io 1 986 even though it knew

that MHR's licensure had been (hanged. The Judge is convinced that the

equities in favor of MHR far outweigh the public interest that May he

frustrated by estopping the Department of Human Services in this situation.

Consequently, the Judge has recommended that this matter be dismissed.

p.c.E .

In Beaty, an applicant for a license as a school psychologist relied on

advice from the executive secretary of the Board of leaching to complete

course work leading to licensure. After completion of the educational require

ment, Appellant's application was denied because of deficiencies in the program

of courses. The Court applied a balancing test, holding that, "Applying

estoppel against the government in this case will not frustrate any legitimate

public purpose, while failing to apply it will result in great hardship to

appellant." Beaty at 411. In Halberg, a trucker's assumed authority, in

conjuncti on with no obj et t ion to that authority from the regulatory agency,

was sufficient to form an equitable basis for estoppel when the agency sought

to restrict trucking business which had been in operation for over ten years.

The Court specifically looked to Petitioner's reliance on the agency's

silence" and the harm that wou Id be done by restrict ion of the trucking

operation. Halberg at 384.