Health Law Daily Retroactive change of facilities’ reimbursement rates did not violate due process
Thursday, September 20, 2018

Retroactive change of facilities’ reimbursement rates did not violate due process

By Jeffrey H. Brochin, J.D.

An Illinois operator of nursing homes was not denied due process when the Illinois Department of Health and Family Services (HFS) retroactively reduced their per diem reimbursement rates for Medicaid beneficiaries, a federal district court in Illinois has ruled. The operator did not have a protected property right because in order for a property interest to merit due-process protection, the operator needed to have a legitimate claim of entitlement to that property interest, and not simply a unilateral expectation of it (Heritage Operations Group, LLC v. Norwood, September 18, 2018, Blakey, J.).

Public process requirement. The Medicaid Act requires each state plan to include certain procedural and substantive elements including a public process for determination of rates under the plan that involves: (1) publishing proposed rates and the methodologies and justifications underlying the proposed rates; (2) giving providers, beneficiaries, and other concerned state residents a reasonable opportunity to review and comment on the published materials; and (3) publishing the final rates and the methodologies and justifications underlying the final rates. States must also provide public notice of any "significant proposed change" in their statewide methods and standards for setting payment rates.

Components of per diem reimbursement. The per diem reimbursement that nursing facilities receive from HFS under the Illinois plan consists of three separate components: (1) support cost; (2) nursing cost; and (3) capital cost. This instant case concerned the nursing component, also known as the direct care component. HFS uses a Resource Utilization Groups (RUGs) system to calculate reimbursement rates for nursing facilities, under which HFS updates individual reimbursement rates on a quarterly basis. To enable these updates, Illinois facilities must submit Minimum Data Set (MDS) assessments to HFS quarterly which must include information about the medical needs of each resident in a given facility. The updates allow HFS to classify each resident under a specific RUG code and establish a given facility’s "case mix" which factors into HFS’ calculation of the facility’s nursing component.

No protected interest. In 2017, CMS approved an amendment to Illinois’ state plan, effective retroactive to January 2016 that provided for the MDS on-site reviews and retroactive rate adjustments. The operator then filed a four-count complaint, alleging among other things, that HFS violated their substantive and procedural due-process rights by auditing the facilities and retroactively adjusting their per diem reimbursement rates. HFS countered that both the substantive and procedural portions should fail because the operator could not identify any protected property interest with which HFS interfered.

The court agreed with HFS, noting that protected property interests must arise from an independent source, such as state or federal law, and that for a property interest to merit due-process protection, the operator must have "a legitimate claim of entitlement" to that property interest, not simply "a unilateral expectation of it." Furthermore, the interest itself must be "substantive rather than procedural in nature." The court found that although the complaint asserted that the operator had a protected property interest, they offered no allegations to properly define or otherwise identify the property interest.

For the foregoing reasons, the court denied the operator’s motion for a temporary restraining order preventing continued audits and recoupment of funds, and granted HFS’ motion to dismiss.

The case is No. 1:17-cv-08609.

Attorneys: Kimberly M. Watt (Sb2, Inc.) for Heritage Operations Group, LLC. Michael T. Dierkes, Illinois Attorney General's Office, for Felicia F. Norwood.

Companies: Heritage Operations Group, LLC

MainStory: TopStory CMSNews LTCHNews MedicaidNews MedicaidPaymentNews IllinoisNews

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