IN THE SUPREME COURT OF MISSISSIPPI NO CC SCT

Transcription

1 E-Filed Document Oct :35: CC SCT Pages: 14 IN THE SUPREME COURT OF MISSISSIPPI NO CC SCT CROSSGATES RIVER OAKS HOSPITAL (f/k/a RANKIN MEDICAL CENTER), GRENADA LAKE MEDICAL CENTER, RILEY MEMORIAL HOSPITAL, KING S DAUGHTERS MEDICAL CENTER-BROOKHAVEN, NATCHEZ COMMUNITY HOSPITAL, WOMAN S HOSPITAL, NORTHWEST MISSISSIPPI REGIONAL MEDICAL CENTER, BILOXI MEDICAL CENTER, RIVER OAKS HOSPITAL, ST. DOMINIC-JACKSON MEMORIAL HOSPITAL, and DELTA REGIONAL MEDICAL CENTER APPELLANTS vs. MISSISSIPPI DIVISION OF MEDICAID and DAVID J. DZIELAK, in his Official Capacity as Executive Director of Mississippi Division of Medicaid APPELLEES ON APPEAL FROM THE CHANCERY COURT OF THE FIRST JUDICIAL DISTRICT OF HINDS COUNTY, MISSISSIPPI APPELLANT ST. DOMINIC-JACKSON MEMORIAL HOSPITAL S REPLY BRIEF ORAL ARGUMENT REQUESTED Jonathan R. Werne (MSB No ) Vice President and General Counsel St. Dominic Health Services, Inc. 969 Lakeland Drive Jackson, Mississippi P: F: jwerne@stdom.com Attorney for Appellant, St. Dominic- Jackson Memorial Hospital

2 Table of Contents Table of Cases, Statutes and Other Authorities Cited... i Statement of Oral Argument... 1 Reply Brief... 1 I. Introduction... 1 II. III. DOM s Methodology Inappropriately Uses Payments to Calculate a Provider s Costs... 2 DOM s Methodology Fails to Exclude Outpatient Radiology and Laboratory Costs and Charges from the Calculation of a Provider s Costto-Charge Ratio... 6 IV. Conclusion Certificate of Service None. Table of Cases, Statutes and Other Authorities Cited i

3 Statement Regarding Oral Argument Appellant, St. Dominic-Jackson Memorial Hospital, requests oral argument in order to aid the Court in its consideration of the issues presented and to address any questions the Court may have. Appellant submits that oral argument would assist the Court in understanding the Appellees clear violations of the unambiguous governing regulations and the arbitrary and capricious manner in which Appellant s administrative appeal was denied. Reply Brief Appellant, St. Dominic-Jackson Memorial Hospital ( St. Dominic s ), submits this separate Reply Brief 1 in support of the Appellants request to reverse and render the trial court s ruling. As explained further below, the Mississippi Division of Medicaid ( DOM or Appellees ) has failed to overcome the evidence and law submitted by the Appellants. I. Introduction This Court has been presented with two methodologies for calculating a provider s cost-to-charge ratio. The Appellants presented a methodology that pulls a provider s costs and charges from the provider s relevant Medicare cost report, excludes any associated costs and charges for outpatient radiology and laboratory services found in the provider s Medicare cost report, and presents the resulting amounts as a ratio. To the contrary, DOM presented a methodology that uses various Medicare blended rates (which is a combination of fees and a provider s costs) as costs 1 St. Dominic s has elected to file a separate Reply. St. Dominic s hereby adopts and incorporates the Reply Brief of the other Appellants. 1

4 for various outpatient services found in the provider s relevant Medicare cost report, pulls a provider s charges from the provider s relevant Medicare cost report, and presents the resulting amounts as ratio. The distinction between the two are clear: (1) DOM uses Medicare blended rates, which are used by Medicare to make payments to providers, as a substitute for a provider s costs; (2) DOM does not exclude any associated costs and charges for outpatient radiology and laboratory services found in the provider s cost report from the calculation of the cost-to-charge ratio. As demonstrated below, only the Appellants methodology fully complies with the Mississippi State Plan for Medical Assistance ( State Plan ). II. DOM s Methodology Inappropriately Uses Payments to Calculate a Provider s Costs. DOM does not dispute that it does not use a provider s costs in calculating the cost-to-charge ratio. Instead, DOM argues that the State Plan requires use of a blended rate as a substitute for a provider s costs because the State Plan requires DOM to calculate the cost-to-charge ratio using Medicare Principles of Reimbursement. According to DOM, the agency based its reimbursement decisions on application of Title XVIII (Medicare) Principles of Reimbursement and, for rate year FY2001, Medicare Principles of Reimbursement required the agency to employ a blended rate methodology.... (Appellees Brief at 12). Again, DOM states, State Plan Attachment 4.19-B required adherence to, and application of Medicare Principles of Reimbursement. (Appellees Brief at 18). Finally, DOM argues, for rate year FY2001, Medicare Principles of Reimbursement required the agency to employ a blended rate methodology.... (Appellees Brief at 12). 2

5 DOM inappropriately added language to the State Plan. The State Plan states, [t]he cost to charge ratio for outpatient services will be computed under Title XVIII (Medicare) methodology.... DOM is reading words into the State Plan that are not there. Nowhere in the State Plan does it state DOM is required to use a blended rate as a substitute for costs or to calculate costs based upon so-called Medicare Principles of Reimbursement. In support of its position, DOM now argues that it originally adopted the revision to the State Plan to specifically comply with Medicare s change in reimbursement methodology. In its Brief, DOM states, Appellee DOM adopted a State Plan Amendment to follow the federal blend payment criteria (Medicare Title 18 methodology) described above effective April 11, 199 [sic]. (Appellees Brief at 6). Again, DOM later confirms that the language of the State Plan was written to conform to the change in federal reimbursement methodology.... (Appellees Brief at 6). Finally, DOM states the amendment was specifically designed... to incorporate the Medicare blend into the cost-to-charge ratio.... (Appellees Brief at 6). This is not the prior testimony of DOM. DOM s representative and designated expert, Karen Thomas, testified about DOM s methodology and when it was adopted. Ms. Thomas testified that DOM adopted the use of the blended rate methodology prior to Medicare starting using the blended amounts to pay providers for providing outpatient services: Q. Okay. Exhibit 15, which is dated August 1, 1997, was issued before Medicare began using the blended amounts for ASC [ambulatory surgical center] and other diagnostic procedures, correct? 3

6 (R ). Therefore, it is disingenuous for DOM to argue that it adopted the Medicare blend rate to incorporate an action Medicare had not yet incorporated. Even if you assume DOM s representative, who is responsible for insuring that the methodology that s used is correct, (R. 757) is not correct and Medicare did begin using the blended amounts prior to the State Plan, it does not support DOM s position. On August 1, 1997, DOM sent out a notification to all Mississippi Medicaid notifying the providers of the new State Plan language that would go into effect on October 1, (R.E ). Nowhere in its notice to all Mississippi Medicaid hospitals does it state Medicaid is revising the State Plan to comport to any changes to Medicare s reimbursement methodology (R.E ). DOM has not been able to provide any document to support its assertion that the revisions to the State Plan in 1997 were specifically designed to incorporate the use of the Medicare blend to be a substitute as costs into the cost-to-charge ratio. And if you accept DOM s argument that Medicare changed its methodology in 1986 to begin using the blended rate (Appellees Brief at 3), then it took DOM over 10 years to incorporate and conform to the Medicare s use of the blended rate. Thus, it is disingenuous for DOM to argue that the reason why the State Plan was revised in August of 1997 was due to Medicare s change in reimbursement that took place over ten years earlier. Either Medicare s change in reimbursement took place after the revision to the State Plan or it took place over 10 years before DOM revised the State Plan. In either instance, it does not support DOM s position. 4

7 It should go without being said, but payments and rates are not costs. DOM does not use a provider s costs to calculate costs in the cost-to-charge ratio. Instead, DOM uses a blended rate as a provider s costs. As DOM freely acknowledged in its Brief, the blended rate is made up of, among other things, fees and charges. (Appellees Brief at 14). At some point, Medicare began to pay providers for outpatient services using a blended rate methodology. Medicare did not adopt a cost-to-charge ratio to reimburse providers for outpatient services. Medicare did not use the blended rate as part of any calculation of a cost-to-charge ratio. Medicare did not say that the blended rate represents a provider s costs. The blended rate is simply used by Medicare to pay providers for their outpatient services. Medicare has issued lines and lines of instructions on how to calculate a provider s payment for outpatient services using the blended rates. (R.E , ). All of these lines of instructions go into great detail how to calculate a provider s payment for the relevant outpatient services. (R.E ). As a quick review of these instructions demonstrate, the calculation of the blended rate is only one piece of the calculation of a provider s payment. DOM simply picks one line out of the instructions and pulls the blended rates and declares these should represent a provider s costs. DOM ignores all of the remaining language in the instructions that is involved with calculating a provider s Medicare payment. None of these instructions state that the blended rates should be used to calculate costs or the costto-charge ratio. None of these instructions state that the blended rates should be used as a substitute for costs. These instructions do state they are used to calculate a 5

8 provider s Medicare payment or reimbursement. Thus, DOM cannot rely on these instructions as support of its position to use the blended rates as a substitute for costs. Only DOM uses the blended rate as a substitute for a provider s costs. Only DOM uses the blended rate in the calculation of the cost-to-charge ratio. DOM cannot point to any document, regulation or statute that requires DOM to use the blended rate as costs in calculating a provider s cost-to-charge ratio. The language of the State Plan does not support DOM s position. DOM must add language to the State Plan to support its position. Accordingly, this Court should find that DOM acted arbitrarily and capriciously in using something other than costs to calculate a provider s cost-tocharge ratio. III. DOM s Methodology Fails to Exclude Outpatient Radiology and Laboratory Costs and Charges from the Calculation of a Provider s Cost-to-Charge Ratio. DOM confesses in its Brief that outpatient radiology and laboratory costs and charges were not removed in calculating the Appellants cost-to-charge ratios. According to DOM, it should be excused from complying with this requirement in the State Plan. Attachment 4.19-B of the State Plan requires DOM to exclud[e] bad debts and other services paid by Medicaid under a different rate methodology from the calculation of the cost-to-charge ratio. (R.E. 14). Attachment 4.19-B specifically notes that all outpatient radiology and laboratory are reimbursed on a fee-for-service basis. (R.E. 14). Since outpatient radiology and laboratory services are reimbursed under a different rate methodology (i.e., a fee-for-service basis), the State Plan 6

9 requires the costs and charges associated with outpatient radiology and laboratory services to be excluded from the calculation of a provider s cost-to-charge ratio. DOM previously did not dispute this State Plan requirement. More importantly, DOM s representative and designated expert, Karen Thomas, testified about this very requirement during the relevant hearings: Q. Now, looking at 4.19-B, that sentence - - we re still on that sentence. If you continue to read, it excludes from the cost-to-charge ratio bad debts and other services paid by Medicaid under a different rate methodology, correct? Q. And outpatient laboratory services and outpatient radiology services are paid on a different rate methodology, correct? Q. They re paid on a fee-for-service basis, right? Q. And the state plan, it excludes outpatient radiology and the laboratory service from the cost-to-charge ratio, correct? Q. And to include them would be contrary to the state plan, correct? Q. Because the state plan says you exclude all outpatient radiology and laboratory, not just some, correct? (R.E ). The testimony of DOM s expert is unequivocal: failure to exclude outpatient radiology and laboratory services from the calculation of a provider s costto-charge ratio is contrary to the State Plan. 7

10 Realizing the problem this causes, DOM now has gone against its own representative and expert and changed its interpretation of the State Plan. DOM states in its Brief, State Plan Attachment 4.19-B simply does not address the inclusion or exclusion of outpatient laboratory and radiology charges from the cost to charge ratio. (Appellees Brief at 23). DOM does not attempt to address its representative s previous testimony to the very State Plan requirement DOM now says does not exist. DOM does not give any purported purpose for the exclusion language in the State Plan. Instead, DOM has chosen to ignore the language because it does not fit in its methodology. In effect, DOM has struck the exclusion language from the State Plan. The real reason why DOM went against its representative and expert and changed its interpretation of the State Plan is because its methodology for calculating the cost-to-charge ratio cannot comply with the State Plan requirements. DOM repeatedly admits in its Brief that its methodology cannot exclude costs and charges associated with radiology and laboratory services. According to DOM, utilizing Medicare Methodology for defining allowable costs cannot exclude costs and charges associated with radiology and lab services.... (Appellees Brief at 18). Again, DOM argues, any consistent application of Medicare Principles of Reimbursement for the rate year in question precludes the removal of laboratory and radiology charges.... (Appellees Brief at 19). Therefore, DOM had a choice: use a methodology that allowed the removal of outpatient laboratory and radiology costs and charges from the calculation of cost-to-charge ratio as required by the State Plan or not. DOM chose not to do so. In making this choice, DOM acted contrary to the 8

11 clear and unambiguous language of the State Plan that it is required to follow and, as a result, acted arbitrarily and capriciously. The most fatal flaw in DOM s new interpretation of the State Plan is that it is contrary to how it actually calculates a provider s cost-to-charge ratio. If outpatient laboratory and radiology costs or charges cannot be removed or the State Plan does not require the exclusion of these costs or charges, then these costs or charges should not be a part of how DOM actually calculated the Appellants cost-to-charge ratio. As you can see below, DOM does, in fact, remove radiology costs from the calculation of the cost-to-charge ratio. (R. 143). Ms. Thomas, the DOM representative responsible for insuring DOM uses the correct methodology, testified to this same calculation. In discussing how DOM actually calculates costs for the cost-to-charge ratio, Ms. Thomas testified: Q. Thank you. And then you then proceed in the next line to take out radiology. That radiology payment comes right back out. 9

12 * * * * Q. And then you re adding up outpatient ambulatory surgery payment and then you add up the diagnostic payment, and you don t include the radiology payment. Correct? * * * * Q. Thank you. And once again, just so I m clear, you re talking [sic] out radiology because of it being paid on a separate rate. It on this fee for service. Correct? Q. You re pulling that out and excluding that from the calculation. A. correct. Q. Okay. To include that in there would be contrary to the plan? (R ). During one of the hearing, Appellants counsel attempted to confirm that DOM consistently included radiology and laboratory services in the calculation of a provider s cost-to-charge ratio, but Ms. Thomas corrected counsel, It s not entirely true the statement that you ve made because we excluded radiology that was subject to the blend. (R.E. 61). This is inexplicable. DOM cannot have it both ways. Either the State Plan requires the removal of radiology costs or it doesn t. Either DOM cannot remove radiology costs or it can. DOM s representative and expert testified that it does require removal. DOM s Brief argues that it does not require removal and that it can t be done. But yet, DOM actually removed some radiology costs from the calculation of the cost-to-charge ratio. 10

13 In this case, actions speak louder than words. DOM removed radiology costs from the calculation of the cost-to-charge ratio because the State Plan required DOM do so. But now, DOM is arguing that radiology costs should not have been removed from the calculating of a provider s cost-to-charge ratio. This is the very definition of an agency acting arbitrarily and capriciously. IV. Conclusion An administrative agency must follow its regulations. Here, DOM acted contrary to its clear State Plan requirements: (1) DOM failed to use a provider s costs in calculating a provider s cost-to-charge ratio; (2) DOM failed to exclude any costs and charges for outpatient radiology and laboratory services from the calculation of the cost-to-charge ratio. Accordingly, St. Dominic-Jackson Memorial Hospital respectfully request that this Court reverse and render the learned Chancellor s decision. Date: October 25, Respectfully submitted, BY: /s/ Jonathan R. Werne Jonathan R. Werne (MSB No ) Vice President and General Counsel St. Dominic Health Services, Inc. 969 Lakeland Drive Jackson, Mississippi P: F: jwerne@stdom.com Attorney for Appellant, St. Dominic- Jackson Memorial Hospital 11

14 CERTIFICATE OF SERVICE I, Jonathan R. Werne, the attorney for Appellant, St. Dominic-Jackson Memorial Hospital, hereby certify that on this day I electronically filed the foregoing Reply Brief with the Clerk of the Court using the MEC system which sent notification of such filing to the following: Paige Biglane Abbie Koonce Office of the Attorney General Post Office Box 220 Jackson, Mississippi Janet McMurtray Dion J. Shanley Purdie and Metz Post Office Box 2659 Ridgeland, Mississippi George H. Ritter John P. Sneed Wise Carter Child and Caraway 401 East Capitol Street, Suite 600 Jackson, Mississippi P. Scott Phillips Campbell Delong Post Office Box 1856 Greenville, Mississippi Further, I hereby certify that I have mailed by United States Postal Service the foregoing Reply Brief to the following non-mec participants: Hon. Patricia D. Wise Hinds County Chancery Judge Post Office Box 686 Jackson, Mississippi This the 25th day of October, /s/ Jonathan R. Werne 12