Opinion
No. 1492 C.D. 2014
06-04-2015
Keystone Independent Living, Inc. and Keystone Community Resources, Inc., Petitioners v. Department of Public Welfare, Respondent
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY SENIOR JUDGE COLINS
This matter is a petition for review filed by Keystone Independent Living, Inc. (KIL) and Keystone Community Resources, Inc. (KCR) (collectively, Petitioners) appealing an order of the Bureau of Hearings and Appeals (BHA) of the Department of Human Services (Department) that rejected their appeals of payment rates assessed by the Department for services that they provided in Fiscal Year (FY) 2009-2010 and FY 2010-2011 to individuals with intellectual disabilities. For the reasons set forth below, we affirm the BHA's denial of both Petitioners' appeals of their FY 2010-2011 payment rates and KCR's FY 2009-2010 appeal, but reverse the BHA's order with respect to KIL's FY 2009-2010 appeal.
At the time of the events relevant to this appeal, the name of the Department was the Department of Public Welfare. Effective November 24, 2014, after the BHA's decision and the filing of the instant appeal, the name of the Department was changed to the Department of Human Services. See Act of September 24, 2014, P.L. 2458, No. 132, § 2, 62 P.S. § 103.
KIL and KCR are corporations that provide home and community services to individuals with intellectual disabilities (waiver services) under the Medicaid Home and Community-Based Services Waiver Program of Section 1915(c) of the Social Security Act, 42 U.S.C. §1396n(c) (Waiver Program). (Certified Record Item (R. Item) 3, Exs. C-34, C-35, Reproduced Record (R.R.) at 33-36; R. Item 11, Hearing Transcript (H.T.) at 144-45, 169, R.R. at 300-301, 325; R. Item 3, Ex. A-1, R.R. at 15, 66.) Waiver services are furnished to enable the intellectually disabled to remain living in their homes and communities rather than institutions. (R. Item 4, BHA Adjudication Findings of Fact (F.F.) ¶3; R. Item 3, Ex. A-1, R.R. at 15, 66.) Pennsylvania's Waiver Program is administered by the Department's Office of Developmental Programs (ODP), and waiver services providers are paid from a combination of state and federal funds. (R. Item 4, BHA Adjudication F.F. ¶4; R. Item 11, H.T. at 147, R.R. at 303.) Prior to July 1, 2009, the Department allocated funds for waiver services to county mental health and intellectual disability programs and providers were paid under contracts that they negotiated with the county programs under the Department's regulations set forth in Title 55, Chapter 4300 of the Pennsylvania Code (the Chapter 4300 system). (R. Item 4, BHA Adjudication F.F. ¶10; R. Item 11, H.T. at 66, 155-62, R.R. at 222, 311-318.)
On July 1, 2009, the Department changed the method for compensating providers to a Prospective Payment System (PPS), under which the Department contracted with and paid providers at rates that it set based on prior year cost reports, with FY 2007-2008 costs used for calculating the FY 2009-2010 rates and FY 2008-2009 costs used for the FY 2010-2011 rates. (R. Item 4, BHA Adjudication F.F. ¶11; R. Item 3, Ex. A-1, R.R. at 30-32; R. Item 11, H.T. at 68-70, R.R. at 224-226; R. Item 3, Exs. C-34, C-35, R.R. at 33-36.) Under PPS, providers were required to submit cost data in October of the year before the fiscal year to which the rates would apply. (R. Item 11, H.T. at 69-70, R.R. at 225-226.) If the provider did not successfully submit the cost data during the time period allowed for submission, it was assigned a rate based on the rates of the other providers who had successfully submitted cost reports. (R. Item 4, BHA Adjudication F.F. ¶22; R. Item 11, H.T. at 70-73, 75-77, R.R. at 226-229, 231-233.) For FY 2009-2010, this default rate was the mid-point rate of all providers; for FY 2010-2011 and all subsequent years, the default rate was the lowest rate of any provider. (R. Item 11, H.T. at 75-77, 87-88, R.R. at 231-233, 243-244.)
In addition, for FY 2009-2010 and FY 2010-2011, the Department instituted a temporary Revenue Reconciliation process to ease the transition from the Chapter 4300 system to PPS and stabilize revenue to waiver services providers until PPS was fully implemented on July 1, 2011. (R. Item 4, BHA Adjudication F.F. ¶¶15, 19; R. Item 11, H.T. at 73-74, 79, R.R. at 229-230, 235; R. Item 3, Ex. C-1, R.R. at 21.) Under Revenue Reconciliation, each provider was assigned revenue targets for FY 2009-2010 and FY 2010-2011 based on the payments it received for waiver services in 2007-2008 and 2008-2009, respectively, under the Chapter 4300 system. (R. Item 3, Ex. C-1, R.R. at 22; R. Item 11, H.T. at 73-75, R.R. at 229-231.) Payments for waiver services were made to providers in FY 2009-2010 and FY 2010-2011 at the rates set under PPS, but the Department, under Revenue Reconciliation, later adjusted the payments to the provider so that its total payments for the fiscal year corresponded to its revenue target for the amount for the services it provided in that year. (R. Item 4, BHA Adjudication F.F. ¶¶19-20; R. Item 3, Ex. C-1, R.R. at 21-24; R. Item 11, H.T. at 74-75, 85-86, R.R. at 230-231, 241-242.) Supplemental payments were made to a provider under Revenue Reconciliation if its PPS payments were below its revenue target, and amounts paid under PPS that exceeded the provider's revenue target were recouped by the Department. (R. Item 4, BHA Adjudication F.F. ¶20; R. Item 3, Ex. C-1, R.R. at 21-24; R. Item 11, H.T. at 74-75, 85-86, R.R. at 230-231, 241-242.)
In 2009, the most recent approval of Pennsylvania's Waiver Program by the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) provided for payment of providers under the Chapter 4300 system. (R. Item 3, Ex. A-1, R.R. at 13-19; R. Item 11, H.T. at 93-95, R.R. at 249-251.) The Department's change from the Chapter 4300 system to PPS, however, was prompted by direction from CMS that the Department move to a more centralized rate setting and cost reporting system because the Chapter 4300 system resulted in inconsistent payment rates and waiver services from one county to another. (R. Item 4, BHA Adjudication F.F. ¶11; R. Item 11, H.T. at 66-68, R.R. at 222-224.) The Department requested CMS approval of an amendment to its Waiver Program to change the provider payment method to PPS with the temporary, two-year Revenue Reconciliation, and CMS issued a written approval of that amendment on May 2, 2011, retroactive to July 9, 2009. (R. Item 3, Ex. A-1, R.R. at 64-69; R. Item 11, H.T. at 90-92, R.R. at 246-248.)
The Department did not publish any notice of proposed rule-making prior to its implementation of PPS or Revenue Reconciliation, but did publish a Notice in the Pennsylvania Bulletin on June 27, 2009, 39 Pa. B. 3243, describing the PPS rate-setting methodology and announcing the Department's intent to implement PPS effective July 1, 2009. (R. Item 3, Ex. A-1, R.R. at 30-32; R. Item 11, H.T. at 95-96, R.R. at 251-252.) This Notice did not describe Revenue Reconciliation or disclose the Department's intent to implement Revenue Reconciliation. (R. Item 4, BHA Adjudication F.F. ¶16; R. Item 3, Ex. A-1, R.R. at 30-32; R. Item 11, H.T. at 96, R.R. at 252.) On June 27, 2009, the Department also published a rescission of 55 Pa. Code Chapter 6000, which had made the Chapter 4300 system applicable to waiver services. 39 Pa. B. 3174. Revenue Reconciliation, however, was never promulgated as a regulation or published in the Pennsylvania Bulletin. (R. Item 4, BHA Adjudication F.F. ¶16.)
On July 1, 2009, Petitioners signed Provider Agreements with the Department. (R. Item 4, BHA Adjudication F.F. ¶12; R. Item 3, Exs. C-34, C-35, R.R. at 33-36.) These Provider Agreements stated that KIL and KCR agreed to comply with "federal and state statutes and regulations ...; the approved waivers; and policy bulletins governing the Waiver Programs issued by ODP ...; provided, however, that Waiver Provider [KIL or KCR] does not thereby waive any rights it has under state and federal law relating to the Waiver Program Standards, including but not limited to ODP's interpretation and application of the Waiver Program Standards to Waiver Provider." (R. Item 4, BHA Adjudication F.F. ¶12; R. Item 3, Exs. C-34, C-35, R.R. at 33-36.)
KIL and KCR did not successfully submit their cost data within the required time period for setting the PPS rates for FY 2009-2010 or FY 2010-2011 and were assigned the default rate for both years. (R. Item 4, BHA Adjudication F.F. ¶23; R. Item 11, H.T. at 81, 88, R.R. at 237, 244.) In addition, because some of KIL's and KCR's group homes had been 5-person or 6-person homes and they were coming into compliance with Waiver Program requirements limiting group homes to a maximum of 4 persons in FY 2009-2010 and FY 2010-2011, KIL's and KCR's costs and revenues for providing waiver services were significantly higher in FY 2009-2010 and FY 2010-2011 than in the years on which Revenue Reconciliation was based. (R. Item 4, BHA Adjudication F.F. ¶¶5-9, 21; R. Item 11, H.T. at 19, 36-37, 148-50, 169-71, R.R. at 175, 192-193, 304-306, 325-327.) For FY 2009-2010, in which KIL and KCR were assigned the mid-point PPS rate, the Department's use of Revenue Reconciliation resulted in an $86,325.16 recoupment from KIL of amounts paid to it under PPS and an additional payment of $49,799.28 to KCR. (R. Item 4, BHA Adjudication F.F. ¶26; R. Item 2, FY 2009-2010 Revenue Reconciliation Letters, R.R. at 92, 95; R. Item 11, H.T. at 104, R.R. at 260.) For FY 2010-2011, in which they were assigned the lowest PPS rate, Revenue Reconciliation resulted in additional payments of $1,135,827.64 and $2,087,680.96 to KIL and KCR, respectively. (R. Item 4, BHA Adjudication F.F. ¶27; R. Item 2, FY 2010-2011 Revenue Reconciliation Letters, R.R. at 107, 112; R. Item 11, H.T. at 104-05, R.R. at 260-261.)
Petitioners timely filed Requests for Hearing appealing their payment rates for both FY 2009-2010 and FY 2010-2011. (R. Item 4, BHA Adjudication F.F. ¶29; R. Item 2, Requests for Hearing, R.R. at 85-113.) Petitioners, however, experienced serious cash flow difficulties as a result of their increased costs and their low default PPS rate for FY 2010-2011. (R. Item 4, BHA Adjudication F.F. ¶¶25, 28; R. Item 11, H.T. at 81, 105, R.R. at 237, 261.) On August 16, 2010, KIL and KCR signed Stipulations of Settlement under which the Department advanced them $845,000 and $805,000, respectively, by August 27, 2010, as gross adjustments that the Department would recoup from them without interest in the Revenue Reconciliation process beginning in April 2011 or later, if Revenue Reconciliation was delayed. (R. Item 4, BHA Adjudication F.F. ¶30; R. Item 3, Ex. C-32, R.R. at 53-57; R. Item 3, Ex. C-33, R.R. at 45-49.) In these Stipulations of Settlement, KIL and KCR each agreed that it "withdraws, discontinues, and ends all appeals to the [BHA], regardless of whether they appear in the caption of this stipulation, that relate to [its] payment rates and Medical Assistance (hereinafter "MA") reimbursement concerning [ODP] waiver funding for the fiscal period ending June 30, 2011." (R. Item 4, BHA Adjudication F.F. ¶30; R. Item 3, Ex. C-32, R.R. at 53 ¶1; R. Item 3, Ex. C-33, R.R. at 45 ¶1.) The Stipulations of Settlement further provided that Petitioners released the Department "from any and all actions, claims, and liability ... that have accrued, may accrue or are derived from ... [a]ll issues relating to [their] MA payment rates, net operating ceilings, and the amount of reimbursement to be paid by [the Department] to [them] for services provided to MA recipients for the fiscal period(s) identified in Paragraph 1 above [the fiscal period ending June 30, 2011]." (R. Item 4, BHA Adjudication F.F. ¶32; R. Item 3, Ex. C-32, R.R. at 54 ¶3; R. Item 3, Ex. C-33, R.R. at 46 ¶3.) The Department likewise released Petitioners from any such claims or liabilities it might have for FY 2010-2011, other than claims based on fraud, abuse or false claims. (R. Item 3, Ex. C-32, R.R. at 54-55 ¶¶3-4; R. Item 3, Ex. C-33, R.R. at 46-47 ¶¶3-4.)
In August 2011, while the instant BHA appeals were pending, Petitioners filed an action against the Department in this Court seeking a declaratory judgment and injunctive relief on the ground that Revenue Reconciliation was an invalid regulation because it was not issued in compliance with the requirements of the act commonly referred to as the Commonwealth Documents Law (Documents Law). The Court dismissed that action, noting that the allegations that Revenue Reconciliation was invalid for failure to comply with the Documents Law "appear to have merit," but concluding the Court lacked jurisdiction because Petitioners had failed to exhaust their administrative remedies in their appeals before the BHA. Keystone Community Resources and Keystone Independent Living v. Department of Public Welfare, Office of Developmental Programs, (Pa. Cmwlth. No. 367 M.D. 2011, filed Dec. 15, 2011) (Cohn Jubelirer, J.), slip op. at 10-14.
Act of July 31, 1968, P.L. 769, as amended, 45 P.S. §§ 1102-1602; 45 Pa. C.S. §§ 501-907.
On November 7, 2012, a hearing on these appeals was held before a BHA administrative law judge. The BHA on August 6, 2014, issued an adjudication denying Petitioners' appeals, ruling that all claims concerning FY 2010-2011 were barred by the Stipulations of Settlement, holding that Petitioners had waived any claim that PPS and Revenue Reconciliation were invalid under federal law, and rejecting Petitioners' argument that the Department's change in payment method was invalid for failure to comply with the Documents Law. (R. Item 4, BHA Adjudication at 13-16.) Petitioners timely appealed the BHA's adjudication to this Court.
Petitioners' Statement of Questions in their brief raises three issues: 1) whether their FY 2010-2011 appeals are barred by the Stipulations of Settlement; 2) whether the Department's implementation of PPS and Revenue Reconciliation prior to CMS's May 2011 retroactive approval violated federal regulations; and 3) whether Revenue Reconciliation was unlawfully applied to them because it was not promulgated in compliance with the Documents Law. We address each of these issues in turn.
This Court's review of the BHA's adjudication is limited to determining whether an error of law was committed, whether constitutional rights were violated, and whether the Department's findings of fact are supported by substantial evidence. Mazzitti & Sullivan Counseling Services,, Inc. v. Department of Public Welfare, 7 A.3d 875, 882 n.5 (Pa. Cmwlth. 2010). The issues in this appeal are questions of law subject to this Court's plenary, de novo review. See Straub v. Cherne Industries, 880 A.2d 561, 566 n.7 (Pa. 2005) (waiver is issue of law); Eastwood Nursing and Rehabilitation Center v. Department of Public Welfare, 910 A.2d 134, 141 (Pa. Cmwith. 2006) (whether agency action violated Documents Law is issue of law); Step Plan Services, Inc. v. Koresko, 12 A.3d 401, 408 (Pa. Super. 2010) (enforceability of settlement is issue of law).
The Stipulations of Settlement
The Stipulations of Settlement by their terms expressly bar Petitioners' claims with respect to FY 2010-2011. (R. Item 3, Ex. C-32, R.R. at 53-54 ¶¶1, 3; R. Item 3, Ex. C-33, R.R. at 45-46 ¶¶1, 3.) The law and public policy of this Commonwealth strongly favor the enforcement of such settlements. McCormack v. State Employees' Retirement Board, 844 A.2d 619, 623 (Pa. Cmwith. 2004); Step Plan Services, Inc. v. Koresko, 12 A.3d 401, 408-09 (Pa. Super. 2010). Petitioners argue that the Stipulations of Settlement are unenforceable because they allegedly lacked consideration, violate federal law and were entered into under duress. We do not agree.
A settlement agreement will not be set aside for lack of consideration where there is a bargained-for exchange by the parties to the settlement that goes beyond agreement to perform existing, undisputed legal obligations. SKF USA, Inc. v. Workers' Compensation Appeal Board (Smalls), 714 A.2d 496, 500 (Pa. Cmwlth. 1998). Here, in exchange for the release of their FY 2010-2011 claims, KIL and KCR each received from the Department an interest-free advance payment of over $800,000 long before the Department had any legal obligation to pay them those amounts. While the total amounts ultimately paid to Petitioners for FY 2010-2011 were unchanged by the advances that they received in the settlement (R. Item 11, H.T. at 43-45, 81-82, R.R. at 199-201, 237-238), this does not negate the very real benefit of the early and interest-free receipt of those funds. In addition, the Department released its rights to any recoupment of the over $1 million in additional payments received by each Petitioner under Revenue Reconciliation for FY 2010-2011 (R. Item 3, Ex. C-32, R.R. at 54-55 ¶¶3-4; R. Item 3, Ex. C-33, R.R. at 46-47 ¶¶3-4), which benefited Petitioners in the event of any ruling that PPS was validly applied for that year and that voided only the Department's implementation of Revenue Reconciliation. There is no evidence that the Department was legally required to pay KIL or KCR an additional $845,000 and $805,000, respectively, in August 2010 or that the Department was barred from recouping its FY 2010-2011 Revenue Reconciliation payments based on the rulings issued in Petitioners' appeals. The Department therefore did not merely do what it was already legally bound to do and its substantial early payments and release of its rights with respect to FY 2010-2011 constitute valid consideration for the release of Petitioners' FY 2010-2011 claims.
Petitioners' claims of illegality and duress likewise fail. Enforcement of a settlement is barred by illegality if the settlement requires performance of an act that violates a statute or other applicable law. Watrel v. Department of Education, 488 A.2d 378, 381 (Pa. Cmwlth. 1985), aff'd, 518 A.2d 1158 (Pa. 1986); Gramby v. Cobb, 422 A.2d 889, 892 (Pa. Super. 1980). Nothing in the Stipulations of Settlement required any party to commit any violation of law. Petitioners do not contend that the gross adjustment advance payments made by the Department were illegal. The fact that Petitioners gave up their right to pursue a disputed claim that the Department's conduct was in violation of federal law does not require any party to violate federal law and therefore does not invalidate their settlement.
A settlement agreement can be set aside on a clear showing of duress. Pennsbury Village Associates, LLC v. McIntyre, 11 A.3d 906, 914 (Pa. 2011); Step Plan Services, Inc., 12 A.3d at 409. The evidence in the record shows that KIL and KCR were in dire financial straits at the time that they agreed to the Stipulations of Settlement. (R. Item 4, BHA Adjudication F.F. ¶¶25, 28; R. Item 11, H.T. at 81, 105, R.R. at 237, 261.) A party's economic distress, however, does not constitute duress and cannot invalidate a settlement agreement where the party was represented by its own counsel and had the opportunity to consult with counsel before entering into the settlement. Degenhardt v. Dillon Co., 669 A.2d 946, 950-52 (Pa. 1996); Carrier v. William Penn Broadcasting Co., 233 A.2d 519, 521 (Pa. 1967); SKF USA, Inc., 714 A.2d at 501; Sofronski v. Civil Service Commission, City of Philadelphia, 695 A.2d 921, 925-26 (Pa. Cmwlth. 1997). Petitioners' contention that Litten v. Jonathan Logan, Inc., 286 A.2d 913 (Pa. Super. 1971), permits the voiding of a settlement based on economic duress, even where the party is represented by and able to consult his own counsel, is without merit. In Litten, the party claiming duress was not represented by his own, independent counsel; his counsel was the brother of the opposing party's lawyer. 286 A.2d at 916. Moreover, to the extent that Litten holds that economic duress alone, without any threat of physical violence, can void a contract or settlement of an adequately represented party, it has been rejected by our Supreme Court and is not an accurate statement of the law of this Commonwealth. Degenhardt, 669 A.2d at 950-52 & n.5.
There is no dispute that KIL and KCR were represented in the settlements by their own counsel, the same counsel who has represented them throughout this litigation. There is no claim that KIL and KCR did not have the opportunity to consult with counsel before agreeing to the Stipulations of Settlement. Indeed, the Stipulations of Settlement were executed on their behalf by their counsel. (R. Item 3, Ex. C-32, R.R. at 57; R. Item 3, Ex. C-33, R.R. at 49.) Petitioners' economic difficulties therefore do not constitute grounds to set aside the Stipulations of Settlement. Degenhardt, 669 A.2d at 950-52; Carrier, 233 A.2d at 521; SKF USA, Inc., 714 A.2d at 501; Sofronski, 695 A.2d at 925-26.
Accordingly, the Stipulations of Settlement are enforceable and bar all of Petitioners' FY 2010-2011 claims. The BHA therefore did not err in denying Petitioners' appeals of their FY 2010-2011 payment rates, regardless of the merits of Petitioners' other arguments and we address Petitioners' other arguments only with respect to their FY 2009-2010 appeals.
Whether the Department Violated Federal Law
The Department is required to comply with the federal Medicaid statutes and regulations in its administration of the Waiver Program. Eastwood Nursing and Rehabilitation Center v. Department of Public Welfare, 910 A.2d 134, 149 (Pa. Cmwith. 2006). Petitioners contend that the Department's implementation of PPS and Revenue Reconciliation prior to May 2011 violated federal regulations that require CMS approval of amendments to state programs. The BHA held that this claim was barred because Petitioners failed to raise it in their Requests for Hearing and in the position paper that they filed prior to the hearing on the appeals. (R. Item 4, BHA Adjudication at 14.)
We agree that Petitioners waived this issue. The Department's regulations governing administrative appeals by medical assistance providers require that the provider commence its appeal by filing a Request for Hearing that sets forth "[d]etailed reasons why the provider believes the agency action is factually or legally erroneous" and "[i]dentification of the specific issues that the provider will raise in its provider appeal." 55 Pa. Code § 41.31(d)(2), (3). The Department's regulations expressly provide that "[a] legal or factual objection or issue not raised in either a request for hearing filed within the time prescribed in subsection (a) or in an amended request for hearing filed under subsection (c) shall be deemed waived." 55 Pa. Code § 41.32(d) (emphasis added). Issues not raised in a Request for Hearing or in an amended Request for Hearing therefore cannot be asserted later in the administrative proceedings as an additional ground for relief. See Mansion Nursing & Convalescent Home, Inc. v. Department of Public Welfare, 506 A.2d 533, 536 (Pa. Cmwlth. 1986) (where Department regulations required party to list the specific issues presented in its appeal, party was barred from adding new issue at administrative hearing on the appeal).
Petitioners' Requests for Hearing on their FY 2009-2010 claims did not identify any violation of any federal statute or regulations or lack of CMS approval as an issue in or ground for the appeals. Rather, these Requests for Hearing asserted only that the Department's Revenue Reconciliation and failure to pay under the Chapter 4300 system violated the Documents Law and other Pennsylvania statutes governing the promulgation of regulations, violated their constitutional due process rights, and violated their contract rights. (R. Item 2, Request for Hearing, R.R. at 85-89.) No amended Request for Hearing was filed by Petitioners. In addition, the Department's regulations required Petitioners to file a position paper prior to the administrative hearing that "[f]or each issue identified in its request for hearing" set forth "[c]itations to the relevant statutory provisions, regulations and other controlling authorities." 55 Pa. Code § 41.113(b). It is clear from Petitioners' position paper that no issue of federal law or CMS approval had been asserted. The only legal issues set forth in Petitioners' position paper were whether Revenue Reconciliation and failure to pay under the Chapter 4300 system violated the Documents Law and Pennsylvania's Mental Health and Intellectual Disability Act of 1966 (Mental Health and Intellectual Disability Act). (Supplemental Certified Record Item 2, Petitioners' Position Paper, R.R. at 138-153.) No mention of federal law or CMS approval appears anywhere in the position paper.
Act of October 20, 1966, Special Sess., P.L. 96, as amended, 50 P.S. §§ 4101-4704.
Contrary to Petitioners' contention, Beverly Enterprises, Inc. v. Department of Public Welfare, 556 A.2d 995 (Pa. Cmwlth. 1989), does not permit their late addition of a new and different, federal law ground for their appeals. In Beverly Enterprises, Inc., the question was whether an appeal was sufficiently specific in its description for the error it raised, not whether new issues could be added, and the Court held that the appeal was sufficiently specific because its reference to a document that clearly set forth the single issue in dispute "inherently identified" that issue. 556 A.2d at 996-97. Here, in contrast, Petitioners' claims that the Department's payment methodology was an unpromulgated regulation in violation of Pennsylvania law do not inherently identify violation of federal approval requirements as an issue in their appeals. In addition, Petitioners' failure to timely raise the issue of CMS approval was not harmless. Petitioners' failure to raise the federal law issue prior to the hearing affected the evidence introduced at the hearing, resulting, as is discussed below, in an absence of evidence necessary to a proper determination of the issue. The BHA therefore did not err in holding that Petitioners waived the issue of whether the Department violated federal law. Mansion Nursing & Convalescent Home, Inc., 506 A.2d at 536.
Moreover, even if this issue were not waived, Petitioners have not shown a violation of federal law. Petitioners base their claim that CMS approval was required on 42 C.F.R. § 430.12(c)(2), which requires that amendment of state Medicaid plans be submitted to CMS for approval. The federal regulations governing such amendments expressly permit CMS to grant retroactive approval of amendments to state payment methods. 42 C.F.R. § 430.20(b)(2) (amendment that "changes the State's payment method and standards" is governed by 42 C.F.R. § 447.256); 42 C.F.R. § 447.256(c) ("A State plan amendment that is approved will become effective not earlier than the first day of the calendar quarter in which an approvable amendment is submitted"). Retroactive approval of amendments to state Waiver Programs is permitted unless the amendment reduces "the number of persons served, services provided or providers." Affiliates, Inc. v. Armstrong, (Nos. 1:09-cv-00149-BLW, 1:11-cv-00307-BLW, filed Aug. 4, 2011), 2011 WL 3421407 at *5 (quoting CMS Manual). Bowen v Georgetown University Hospital, 488 U.S. 204 (1988), and Bennett v. New Jersey, 470 U.S. 632 (1985), relied on by Petitioners, are not to the contrary. In both Bowen and Bennett, the issue was retroactive imposition of a new regulation or new statutory standard to past payments and actions, not retroactive approval of an existing regulation or procedure.
While the regulation specifically governing approval of Waiver Programs provides that the effective date of the approval of the Waiver Program itself is prospective, 42 C.F.R. § 430.25(h), that provision does not apply to amendments to an approved Waiver Program. See 42 C.F.R. § 430.25(f) (providing only that paragraph (f), governing CMS review and approval, not the time or effective date of implementation, applies to Waiver Program amendments).
Here, it is undisputed that CMS approved the amendment of Pennsylvania's Waiver Program changing its payment methodology to PPS and Revenue Reconciliation and made that approval retroactive to July 1, 2009, when the PPS and Revenue Reconciliation were implemented. (R. Item 3, Ex. A-1, R.R. at 64.) Any conclusion that the retroactive date of the approval is invalid requires proof of the date that the Department submitted the amendment to CMS. It is not clear from the evidence in the record what the date of that submission was. The only indication of the date, the language "Application for 1915(c) HCBS Waiver: PA.0147.R04.03 - Jul 01, 2009 (as of Jul 01, 2009)" appearing at the top of the Department's submission of the amendment to CMS (R. Item 3, Ex. A-1, R.R. at 66), suggests that the submission date was July 1, 2009, in which case the retroactive approval is valid. See 42 C.F.R. § 447.256(c); Affiliates, Inc., 2011 WL 3421407 at *5. Petitioners therefore have not shown that this retroactive approval was invalid and have shown no violation of federal law.
Whether Revenue Reconciliation Constituted an Unpromulgated Regulation in Violation of the Documents Law
It is well settled that agency regulations must be promulgated in compliance with the procedures and requirements of the Documents Law. Borough of Bedford v. Department of Environmental Protection, 972 A.2d 53, 62 (Pa. Cmwlth. 2009) (en banc); Eastwood Nursing and Rehabilitation Center, 910 A.2d at 141-42. A regulation not promulgated in accordance with the Documents Law is a nullity and cannot be enforced. Transportation Services, Inc. v Underground Storage Tank Indemnification Board, 67 A.3d 142, 154 (Pa. Cmwlth. 2013); Northwestern Youth Services, Inc. v. Department of Public Welfare, 1 A.3d 988, 992 (Pa. Cmwlth. 2010), aff'd, 66 A.3d 301 (Pa. 2013); Borough of Bedford, 972 A.2d at 62-63.
Sections 201 and 202 of the Documents Law require that the agency give notice to the public of its proposed rulemaking and an opportunity for the public to comment prior to promulgating the regulation. 45 P.S. §§ 1201, 1202; Transportation Services, Inc., 67 A.3d at 154 n.18; Borough of Bedford, 972 A.2d at 62 & n.11. Under Section 207 of the Documents Law, regulations must also be published in the Pennsylvania Bulletin. 45 P.S. § 1207 (requiring that text of regulation be deposited with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin); Transportation Services, Inc., 67 A.3d at 154 n.18; Borough of Bedford, 972 A.2d at 62-63 & n.11. Section 204 of the Documents Law permits the agency to omit or modify the pre-promulgation notice and comment procedures required by Sections 201 and 202 where the regulation relates to "Commonwealth property, loans, grants, benefits or contracts," but does not permit the agency to exempt such regulations from the publication requirement of Section 207. 45 P.S. § 1204(1)(iv). There is no dispute that Revenue Reconciliation was never published in the Pennsylvania Bulletin and was not promulgated in accordance with the requirements of the Documents Law. (R. Item 4, BHA Adjudication F.F. ¶16.) Accordingly, if Revenue Reconciliation constituted a regulation, it was invalid and unenforceable.
Regardless of how it is characterized by the agency, an agency action constitutes a regulation and is subject to the Documents Law if it purports to establish a "binding norm." Northwestern Youth Services, Inc., 1 A.3d at 993; Cash America Net of Nevada, LLC v. Commonwealth, 978 A.2d 1028, 1033 (Pa. Cmwlth. 2009) (en banc), aff'd, 8 A.3d 282 (Pa. 2010). To determine whether the agency has established or attempted to establish a binding norm, this Court examines: (1) the plain language of the provision; (2) the manner in which the agency has implemented it; and (3) whether the provision restricts the agency's discretion. Northwestern Youth Services, Inc., 1 A.3d at 993; Cash America Net of Nevada, LLC, 978 A.2d at 1033; Eastwood Nursing and Rehabilitation Center, 910 A.2d at 144. Language that is directive and imposes substantive requirements on the agency creates a binding norm and supports the conclusion that the agency action is a regulation. Northwestern Youth Services, Inc., 1 A.3d at 994-95; Eastwood Nursing and Rehabilitation Center, 910 A.2d at 146. Where the agency is presently enforcing the provision by its terms, rather than expressing future intent or using the provision as a factor to consider in its determinations, the provision is a regulation, not merely a statement of policy or guideline. Northwestern Youth Services, Inc., 1 A.3d at 995; Eastwood Nursing and Rehabilitation Center, 910 A.2d at 146-48.
Applying these standards, this Court held in Northwestern Youth Services, Inc. that an agency bulletin that imposed payment limits and cost reporting requirements on children and youth service providers established a binding norm and therefore constituted a regulation. 1 A.3d at 993-96. Because the Department did not promulgate those payment procedures in compliance with the Documents Law, the Court ruled that the payment procedures were void and unenforceable. Id. The Department's Revenue Reconciliation here is indistinguishable from the Department bulletin invalidated as an unpromulgated regulation in Northwestern Youth Services, Inc.
The Department's language setting forth Revenue Reconciliation was directive and imposed substantive requirements on how the Department paid providers. The Waiver Program amendment approved by CMS describes the Department's use of Revenue Reconciliation as a payment methodology that is automatically applied, stating:
Beginning July 1, 2009, ODP is in the process of transitioning to a prospective payment system (PPS) that will be fully effective July 1, 2011. During the two-year transition period, the PPS is comprised of two components: rate-setting and revenue reconciliation.(R. Item 3, Ex. A-1, R.R. at 67, 69) (emphasis added). Nothing in this description gives the Department any discretion in the application of Revenue Reconciliation. The Department's use of "are," rather than "may," suggests that the Department intended Revenue Reconciliation to be a binding norm, not a statement of policy or guideline.
* * *
The provider bills throughout the fiscal year using the payment rates ODP established. Final payments to the provider are made in accordance with the revenue reconciliation process. Under the revenue reconciliation process, each Provider's total paid claims are compared to the provider's revenue from a prior year for applicable services and additional services provided during the current fiscal year for purposes of determining the final payment to the provider, which is communicated to each provider at intervals throughout the fiscal year.
The Department's implementation of Revenue Reconciliation also supports the conclusion that it was a regulation. Revenue Reconciliation was put into use by the Department in FY 2009-2010 and FY 2010-2011 and therefore was plainly not an expression of future intent. It was, moreover, implemented as the method for setting payments to waiver services providers for those two years, not as a mere factor to consider in determining payment amounts. (R. Item 4, BHA Adjudication F.F. ¶¶19-20; R. Item 11, H.T. at 74-75, 85-86, 89, R.R. at 230-231, 241-242, 245.)
Finally, the record shows that Revenue Reconciliation restricted the Department's discretion. Under Revenue Reconciliation, the Department had no discretion to deviate from its terms and consider or make exceptions based on other factors concerning the provider's situation. Rather, the Department was required to adjust the provider's payments so that it received the amount set by Revenue Reconciliation for that year, recouping all amounts above the Revenue Reconciliation revenue target and making additional payments to bring the provider to that revenue target if its PPS payments were below that revenue target. (R. Item 4, BHA Adjudication F.F. ¶20; R. Item 11, H.T. at 44-45, 75, 85-86, 89, R.R. at 200-201, 231, 241-242, 245.)
The BHA found that provider participation in Revenue Reconciliation was voluntary. (R. Item 4, BHA Adjudication 13.) The Department argues, and the BHA held, that this made Revenue Reconciliation discretionary and therefore not a regulation subject to the Documents Law. We do not agree. The issue in determining whether an agency action establishes a binding norm is whether it restricts the agency's discretion, not whether it restricts other parties' discretion. Northwestern Youth Services, Inc., 1 A.3d at 995 & n.8; Eastwood Nursing and Rehabilitation Center, 910 A.2d at 148. In Northwestern Youth Services, Inc., this Court rejected this same argument that voluntariness of provider participation made the Department's action a discretionary policy that did not require compliance with the Documents Law, stating:
This argument completely misses the point. The relevant inquiry is not whether the Bulletin restricts the counties' or
the providers' discretion, but whether it restricts the agency's, i.e., the Department's, discretion.1 A.3d at 995 n.8 (emphasis in original). Nothing in the BHA's finding of voluntariness of provider participation or the record suggests that the Department had any discretion to alter the application of Revenue Reconciliation on a case-by-case basis.
Moreover, there is nothing in the record that shows that the Department gave KIL and KCR notice that they could avoid reduction of their payments by electing not to participate in Revenue Reconciliation. The only evidence of voluntariness consisted of testimony by one Department witness that some other providers were privately told by the Department, upon telephone inquiry, that they could choose to not participate in Revenue Reconciliation. (R. Item 11, H.T. at 136-40, R.R. at 292-296.) That witness admitted that she had no knowledge that Petitioners were ever told that Revenue Reconciliation was voluntary. (R. Item 11, H.T. at 137-38, R.R. at 293-294.) The written notification to providers for FY 2009-2010 stated only that providers receiving $100,000 or less in waiver services payments "may choose" to submit certain cost schedules and "be eligible to participate in the revenue reconciliation process" and that other "[p]roviders that ... are required to but do not submit a cost report will be ineligible to participate in the revenue reconciliation process." (R. Item 3, Ex. C-1, R.R. at 21.) The first of these two situations has no applicability to Petitioners, as KIL and KCR each received over $2 million in waiver services payments in FY 2009-2010. (R. Item 2, FY 2009-2010 Revenue Reconciliation Letters, R.R. at 92, 95.) Notice that a provider could make itself ineligible for Revenue Reconciliation by not submitting cost reports is not an offer of a choice to accept or reject Revenue Reconciliation, as the failure to submit the required cost reports subjected providers to potentially drastic reduction in their PPS payment rates. (R. Item 11, H.T. at 75-76, 87-88, 139-40, R.R. at 231-232, 243-244, 295-296.)
The Department also argues that Petitioners are barred from challenging Revenue Reconciliation because they agreed to accept all Department policies in the Provider Agreements that they signed. This argument likewise fails. The Provider Agreements signed by KIL and KCR both expressly state that the "Waiver Provider does not thereby waive any rights it has under state and federal law relating to the Waiver Program Standards, including but not limited to ODP's interpretation and application of the Waiver Program Standards to Waiver Provider." (R. Item 3, Exs. C-34, C-35, R.R. at 33-36) (emphasis added). Given this reservation of Petitioners' rights to contest violations of state law, the Provider Agreements did not relieve the Department of its obligations to comply with the Documents Law in implementing Revenue Reconciliation.
In sum, Petitioners have demonstrated that Revenue Reconciliation constituted a regulation, not a discretionary policy or guideline. The Department's failure to promulgate Revenue Reconciliation in accordance with the Documents Law therefore rendered that payment methodology void and unenforceable. Transportation Services, Inc., 67 A.3d at 156; Northwestern Youth Services, Inc., 1 A.3d at 992; Eastwood Nursing and Rehabilitation Center, 910 A.2d at 141-48, 151. Accordingly, the BHA erred in upholding the Department's application of Revenue Reconciliation to calculate Petitioners' FY 2009-2010 payments.
The fact that Revenue Reconciliation was invalid, however, does not entitle Petitioners to payment under the Chapter 4300 system. Revenue Reconciliation was a methodology that adjusted the rates set by PPS, not the Department action that rescinded or replaced the Chapter 4300 system. Unlike Revenue Reconciliation, PPS was published in the Pennsylvania Bulletin, as was the rescission of the Department's provisions that made the Chapter 4300 system applicable to waiver services. 39 Pa. B. 3243; 39 Pa. B. 3174. Although neither of these actions was done through notice of proposed rule-making under Sections 201 and 202 of the Documents Law, Petitioners have not argued anywhere in their brief in this Court that either of those actions violated the Documents Law. It is also not clear that the Department was required to comply with Sections 201 and 202 of the Documents Law in promulgating or changing regulations concerning medical assistance provider payments. See 45 P.S. § 1204(1)(iv) ("an agency may omit or modify the procedures specified in sections 201 and 202, if: (1) The administrative regulation or change therein relates to ... (iv) Commonwealth property, loans, grants, benefits or contracts").
Petitioners assert in the argument section of their brief that failure to pay providers under the Chapter 4300 system violated the Mental Health and Intellectual Disability Act because it allegedly did not provide adequate funding for services to intellectually disabled individuals. (Petitioners' Br. at 41-46.) Under Rule 2116 of the Rules of Appellate Procedure, "[n]o question will be considered unless it is stated in the statement of questions involved or is fairly suggested thereby." Pa. R.A.P. 2116(a). The only issue concerning violation of state law set forth by Petitioners in their Statement of Questions is: "Did BHA err in finding that Revenue Reconciliation was a lawful method for calculating Petitioners' payments for waiver services in Fiscal Years 2009-2010 and 2010-2011 where Revenue Reconciliation regulations were never promulgated and there is no substantial evidence of record that participation in Revenue Reconciliation was voluntary?" (Petitioners' Br. at 4.) Whether the Department violated substantive funding obligations of a statute that does not govern the requirements for promulgating regulations is an entirely different question not fairly suggested by the issue of whether the Department complied with the requirements for promulgation of regulations. This argument is therefore waived and need not be considered by this Court. Mooney v. Greater New Castle Development Corp., 510 A.2d 344, 348 n.4 (Pa. 1986); Dunn v. Board of Property Assessment, Appeals and Review of Allegheny County, 877 A.2d 504, 510 n.13 (Pa. Cmwlth. 2005), aff'd, 936 A.2d 487 (Pa. 2007). In any event, even if it were not waived, Petitioners have not shown a violation of the Mental Health and Intellectual Disability Act. Petitioners did not introduce evidence at the administrative hearing that PPS provided inadequate payments to providers as a whole or that their PPS rates for FY 2009-2010, which were the midpoint rate for providers, were inadequate to reimburse the cost of providing waiver services. Rather, with respect to FY 2009-2010, they showed only that their PPS rate did not fully compensate them for idiosyncratic increased costs that they incurred that year to cure their prior failure to comply with Waiver Program occupancy requirements and that it did not meet their particular debt service needs. (R. Item 4, BHA Adjudication F.F. ¶¶5-9, 21; R. Item 11, H.T. at 19, 31-37, 39-40, R.R. at 175, 187-193, 195-196.) --------
Because Petitioners have shown only that Revenue Reconciliation was illegally applied to them, not that PPS was unenforceable, their remedy is recovery of all payments for FY 2009-2010 that were recouped by the Department's invalid application of Revenue Reconciliation. The BHA found that the Department recouped $86,325.16 from KIL for FY 2009-2010 based on Revenue Reconciliation. (R. Item 4, BHA Adjudication F.F. ¶26.) KIL is therefore entitled to an order directing the Department to repay the $86,325.16 it recouped from KIL. No moneys, however, were recouped from KCR; instead it received a benefit from Revenue Reconciliation, an additional payment of $49,799.28 beyond the payments it received under PPS. (Id.) Because KCR was not adversely affected by the Department's implementation of Revenue Reconciliation, it was not entitled to any relief in its appeal. We therefore affirm the BHA's denial of KCR's FY 2009-2010 appeal. Orange Stones Co. v. City of Reading, 87 A.3d 1014, 1023 (Pa. Cmwlth. 2014) (this Court may affirm even if the tribunal below erred where affirmance is required for a different reason); Guy M. Cooper, Inc. v. East Penn School District, 903 A.2d 608, 618 & n.9 (Pa. Cmwlth. 2006) (same).
For the reasons set forth above, we affirm the BHA's denial of Petitioners' FY 2010-2011 appeals and KCR's FY 2009-2010 appeal, but reverse the BHA's order with respect to KIL's FY 2009-2010 appeal.
/s/ _________
JAMES GARDNER COLINS, Senior Judge ORDER
AND NOW, this 4th day of June, 2015, the order of the Bureau of Hearings and Appeals of the Department of Human Services (BHA) in the above-captioned matter is REVERSED insofar as it denied Petitioner Keystone Independent Living, Inc.'s appeal of its Fiscal Year 2009-2010 payment rates and is AFFIRMED insofar as it denied Petitioners' Fiscal Year 2010-2011 appeals and Keystone Community Resources, Inc.'s Fiscal Year 2009-2010 appeal. This case is remanded to the BHA with instructions to order the Office of Developmental Programs of the Department of Human Services to pay Petitioner Keystone Independent Living, Inc. the additional amount of $86,325.16 for Fiscal Year 2009-2010.
Jurisdiction relinquished.
/s/ _________
JAMES GARDNER COLINS, Senior Judge