Department of Public Welfare v. Presbyterian Medical Center

826 A.2d 34, 2003 Pa. Commw. LEXIS 352

• Court: Commonwealth Court of Pennsylvania
• Decided: May 15, 2003
• Status: Published

Opinions

OPINION BY

Judge McGINLEY.

The Department of Public Welfare (DPW) petitions for review of a Board of Claims’ decision to award Presbyterian Medical Center of Oakmont and Presbyte-rían Medical Center of Oakmont, Pennsylvania, Inc. (Oakmont) $811,324.00 plus prejudgment and post-judgment interest as a result of DPW audits of Oakmont’s reimbursement under medical assistance.

DPW issued a series of audit reports establishing Oakmont’s reimbursement under the medical assistance program. Oak-mont filed administrative appeals contesting certain payment reimbursements with DPW’s Bureau of Hearings and Appeals (BHA). Then Oakmont filed three claims¹ before the Board of Claims. In 1996, Oak-mont withdrew two of its administrative claims with the BHA and proceeded with its claims before the Board of Claims. Hearings were held in July 1999.

Oakmont is a licensed nursing facility, which participated in the medical assistance program.² Prior to 1996,³ DPW reimbursed nursing facilities based on a retrospective cost-based reimbursement system. Payment rates were limited by certain DPW regulations at issue here known as the “$22,000/bed cap”⁴ and the “moratorium.”⁵

Under the retrospective cost-based system, DPW made interim payments to the nursing facility during the fiscal year. At the close of the fiscal year the nursing facility filed a cost report with DPW and identified the costs incurred during that year. DPW audited the cost report and in accordance with DPW regulations determined the nursing facility’s allowable costs, payment rates and reimbursement. DPW issued an audit report and a final cost settlement, reconciling the nursing facility’s interim-payments with its audited payment rates.

In this controversy, Oakmont disagreed with the audit results. Oakmont contended that DPW erred when it applied the “moratorium” to its movable equipment costs. In 1984, Oakmont had undertaken a construction project and added sixty-eight (68) new beds to the facility. Oak-mont used existing movable equipment and purchased more than $460,000 in new movable equipment. DPW determined the 68 new beds were subject to the “moratorium.” DPW disallowed the related depreciation and capital interest costs including the depreciation and interest on the movable equipment. DPW calculated this figure using a ratio of 68 unallowable beds to 202 total beds.

Oakmont also contested DPW’s refusal to classify $7,466 in interest expense for 1996. In prior years DPW reclassified the interest to working capital. However, in 1994, Oakmont refinanced its bonds and DPW’s auditor decided to validate the propriety of the reclassification. Oakmont could not demonstrate why the interest should be reclassified, so the auditor did not reclassify the interest for 1995. DPW discovered in a post-audit review that Oak-mont overbilled the medical assistance with respect to certain laundry services. The parties agreed that the issues related to laundry costs were not before the Board of Claims. Oakmont then filed a motion with the Board of Claims seeking a protective order against any recoupment of funds.

The Board of Claims made the following relevant conclusions of law:

1. The Board of Claims has jurisdiction over the subject matter of this action

2. DPW consented to the formation of a contractual relationship between itself and Oakmont.

5. Depreciation and capital interest reimbursement on movable equipment is not subject to a moratorium pursuant to 55 Pa.Code Section 1181.65 and is, therefore, due and owing.

7. DPW wrongfully reclassified working capital interest to capital interest in 1995.

11. Pre-judgment interest shall be awarded on all matters presently pending before the Board of Claims relative to this case.

13. Post-judgment interest is hereby awarded on all matters pending before the Board of Claims relative to this issue.

14. The defenses of recoupment, mistake and off-set are affirmative defenses that must be clearly stated in New Matter or they are waived. Household Consumer Discount Co. v. Vespaziani, 490 Pa. 209, 415 A.2d 689 (1980) Pa.R.C.P. 1032 (a).

15. The defenses of recoupment, mistake and off-set are hereby waived; moreover, to permit them would be highly prejudicial to the Claimant, Oak-mont.

17. DPW failed to adequately plead that the interest income generated from the Debt Service Reserve Fund should be used to off-set Oakmont’s capital interest reimbursement and is, therefore, barred from raising that as an issue.

Board of Claims Opinion, April 17, 2001, Conclusions of Law 1-2, 5, 7, 11, 13-15, 17 at page 13-14.

On appeal,⁶ DPW initially raises the question of whether the Board of Claims has jurisdiction when the issues involve the interpretation and application of DPW regulations.

DPW argues that the Board of Claims lacks subject matter jurisdiction. DPW contends this is a rate setting dispute and outside of the Board of Claims’ jurisdiction because it does not arise from contract. Oakmont cites no provision of its provider agreement in support of its claims. Rather, Oakmont asserts DPW has breached its obligation to pay Oakmont by not following its regulations.⁷

In determining whether the Board of Claims has subject matter jurisdiction, we are guided by our recent decision in Pennsylvania Department of Public Welfare v. Riverstreet Associates, 798 A.2d 260 (2002). In Riverstreet, a nursing home facility had challenged peer group prices and payment rates issued by DPW for payment to Riverstreet. Riverstreet alleged that DPW breached its contract when it set its peer group prices and payment rates. This Court found that the Board of Claims did not have subject matter jurisdiction. The dispute centered on the meaning and interpretation of DPW regulations, not whether DPW breached the provider agreement by not following its regulations. “At issue is a complicated method of establishing payment rates and setting payment rates. This is within the specific expertise and delegated legislative authority of DPW.” Riverstreet, 798 A.2d at 264. This Court finds the current controversy similar to the Riverstreet dispute. Here, as in Riverstreet, Oakmont challenges DPW’s application of its regulations arguing it made erroneous audit adjustments and therefore failed to make certain payments to Oakmont.⁸

Oakmont’s claim does not sound in contract. “[T]he jurisdictional predicate is satisfied only when the claimant relies upon the provisions of that contract in asserting the claim against the Commonwealth.” Keenheel v. Pennsylvania Securities Commission, 523 Pa. 223, 227-228, 565 A.2d 1147, 1149 (1989). To determine whether the Board of Claims has jurisdiction the focus must be on the nature of the underlying claims and not the mere existence of a contractual relationship between the parties. Yurgosky v. Administrative Office of Pennsylvania Courts, 554 Pa. 533, 722 A.2d 631 (1998). Here, as in Riverstreet, Oakmont’s claims derive from DPW regulations and not from issues of contract. Consequently, we find no jurisdiction with the Board of Claims.

Accordingly, we vacate and dismiss this action.⁹

ORDER

AND NOW, this 15th day of May, 2008, the order of the Board of Claims in the above-captioned case is vacated and the case is dismissed.

1 . Oakmont filed three claims before the Board of Claims: (1) March 9, 1995, disputing DPW's reimbursement for 1990, 1991, and 1992; (2) May 23, 1996, disputing DPW’s reimbursement for 1994; and (3) November 13, 1997, disputing DPW’s reimbursement for 1995.

2 . As a participant, Oakmont signed a provider agreement. In 1990, the provider agreement directed that DPW pay in accordance with its regulations. In the early 1990’s, DPW replaced this provider agreement. For all other periods at issue, Oakmont’s provider agreement consisted of a one-page enrollment with no payment terms.

3 . After January 1996, DPW’s reimbursement system changed to the case-mix system. The case-mix system does not apply in this case.

4 . The "$22,000/bed cap” limited allowable depreciation and capital interest costs to a maximum construction cost per bed of $22,000. 55 Pa. Code §§ 1181.65(c)(4); 1181.259(s); 1181.260(k).

5 . The "moratorium” generally precluded recognition of any depreciation and capital interest costs related to "new or additional beds” constructed pursuant to a certificate of need or letter or nonreviewability dated after August 31, 1982 unless the beds were considered "replacement beds.” 55 Pa.Code §§ 1181.65(c)(1); 1181.259(r); 1181.260(a).

6 . Our standard of review is limited to determining whether constitutional rights have been violated, whether an error of law has been commit) ed or whether necessary findings of fact are supported by substantial evidence. Shovel Transfer and Storage Inc. v. Pennsylvania Liquor Control Board, 559 Pa. 56, 739 A.2d 133 (1999).

7 . In November 2002, the Pennsylvania State Legislature enacted Act 142-2002(Act) and provided that all medical assistance provider reimbursement disputes shall be heard by DPW's Bureau of Hearings and Appeals (BHA) and the Board of Claims shall not have subject matter jurisdiction. Under the terms of the Act the Board of Claims shall continue to have jurisdiction until DPW publishes a standing practice order for proceedings, this standing order must be issued by July 1, 2003. Once that standing order is issued, the Board of Claims Act is repealed and replaced with a new Chapter 17 of the Procurement Code governing the Board of Claims. The Board of Claim’s jurisdiction over claims for payment or damages to providers of medical assistance services is abolished.

8 . In Department of Public Welfare v. Divine Providence Hospital, 516 A.2d 82 (Pa.Cmwlth. 1986), this Court noted that in certain instances DPW would have jurisdiction because of its expertise but a cause of action for breach of contract might properly be before the Board. Divine Providence, 516 A.2d at 84. In Department of Public Welfare v. Shapiro, 91 Pa.Cmwlth. 64, 496 A.2d 887 (1985), where the only question was whether DPW had received invoices, this Court found the matter was within the Board’s jurisdiction. See Smock v. Com., 496 Pa. 204, 436 A.2d 615 (1981)(nursing home owner’s Medicaid license revoked, faced financial setbacks and sought recovery on contract theory); Department of Public Welfare v. Maplewood Manor Convalescent Center, 168 Pa.Cmwlth. 314, 650 A.2d 1117 (1994)(Board had jurisdiction over a claim for payment but did not have the power to alter a private settlement agreement between DPW and nursing home.).

9 . Because we find that the Board of Claims does not have jurisdiction over the claims raised we need not examine whether the Board of Claims should have stayed the proceedings pending administrative appeals; whether DPW breached its contract disallowing capital costs in connection with moveable equipment with nursing facility beds constructed after August 31, 1982; whether DPW breached a contract refusing to classify interest expense as working capital; whether the Board of Claims erred in awarding prejudgment interest; whether the Board of Claims may prohibit DPW from reauditing a cost report including laundry costs; whether Oak-mont’s expert witness should have been able to testify when the Board of Claims refused to hear DPW's recoupment defense.