CHS-Lake Erie, Inc. v. Ohio Dept. of Medicaid

[Cite as CHS-Lake Erie, Inc. v. Ohio Dept. of Medicaid, 2020-Ohio-505.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
CHS-Lake Erie, Inc. et al., :
Appellants-Appellees/ :
Cross-Appellants, No. 18AP-897
: (C.P.C. No. 16CV-9766)
v.
: (REGULAR CALENDAR)
Ohio Department of Medicaid,
:
Appellee-Appellant/
Cross-Appellee. :
D E C I S I O N
Rendered on February 13, 2020
On brief: Webster & Associates, Co., LPA, and Geoffrey E.
Webster, for appellees/cross-appellants. Argued: Geoffrey
E. Webster.
On brief: Dave Yost, Attorney General, and Rebecca L.
Thomas, for appellant/cross-appellee. Argued: Rebecca L.
Thomas.
APPEAL from the Franklin County Court of Common Pleas
BEATTY BLUNT, J.
{¶ 1} Appellant/cross-appellee, the Ohio Department of Medicaid (the
"department")1 appeals from a judgment of the Franklin County Court of Common Pleas
affirming in part and reversing in part the department's adjudication order determining
1 Pursuant to 2013 Am.Sub.H.B. No. 59, the General Assembly created the Ohio Department of Medicaid
effective July 1, 2013. The Ohio Department of Medicaid assumed responsibility and authority over the Ohio
Medicaid cases previously under jurisdiction of the Ohio Department of Job and Family Services.
References to the "department" throughout this decision refer either to the Ohio Department of Job and
Family Services or the Ohio Department of Medicaid interchangeably depending on the relevant time
frame.
No. 18AP-897 2
that appellees/cross-appellants, CHS-Glenwell, Inc. (dba Glen Meadows), CHS-Glenwell,
Inc. (dba Wellington Manor), CHS-Greater Cincinnati, Inc. (dba East Galbraith Health
Care Center ("East Galbraith")), CHS-Lake Erie, Inc. (dba Carington Park), CHS-Miami
Valley, Inc. (dba Vandalia Park), CHS-Miami Valley, Inc. (dba Franklin Ridge), and CHS-
Ohio Valley, Inc. (dba Terrace View Gardens) (collectively, "CHS"2 or "the facilities") owed
the department $11,111,557.96 in Medicaid provider overpayments. For the reasons which
follow, we affirm in part and reverse in part the judgment of the common pleas court.
I. Facts and Procedural History
{¶ 2} CHS operates long-term care facilities, providing room, board, and nursing
services to persons eligible for benefits under Ohio's Medicaid program. Pursuant to R.C.
Chapter 51113 and Title XIX of the Social Security Act, the department administers the
Medicaid program in Ohio.
{¶ 3} In 2009, the department issued proposed adjudication orders to CHS. The
proposed adjudication orders informed CHS that the department intended to implement
the findings of final fiscal audits, which demonstrated that CHS had received an
overpayment of Medicaid funds. CHS timely requested R.C. Chapter 119 hearings on the
proposed adjudication orders. The department consolidated the matter into a single
proceeding and appointed a hearing examiner.
{¶ 4} The department conducted two types of audits in this case: cost report audits
and days audits. In the cost report audits, the department audited the calendar year4 2003
cost reports filed by Carington Park, Terrace View Gardens, Vandalia Park, and Franklin
Ridge; the six-month cost report filed by East Galbraith covering July 1 to December 31,
2003; and the three-month cost reports filed by Glen Meadows and Wellington Manor
covering December 1, 2003 to February 29, 2004. The hearing examiner referred to all the
cost reports as the 2003 cost reports.
2 Although Carington Health Systems, the parent corporation to the facilities at issue, operates other long-
term care facilities, references to CHS herein refer only to the seven named facilities.
3 The Medicaid reimbursement statutes and rules have been revised since the time of the events at issue in
this case. All references to R.C. Chapter 5111 and Ohio Administrative Code Chapter 5101 throughout this
decision are to the versions of those statutes and rules in effect during the fiscal years for which the
department sought repayment.
4 A calendar year went from January 1 to December 31; for example, calendar year 2003 went from
January 1 to December 31, 2003.
No. 18AP-897 3
{¶ 5} Nursing facilities report their yearly operating costs to the Medicaid program
through cost reports. Nursing facilities prepare cost reports using the accrual basis of
accounting. The 2003 cost reports contained separate cost centers for direct care costs,
indirect care costs, capital costs, and other protected costs.
{¶ 6} From fiscal year5 1994 to fiscal year 2005, Ohio used a nursing facility's
calendar year cost report to establish the facility's per diem rate for the subsequent fiscal
year. For example, the calendar year 1994 cost report established the per diem rate for
fiscal year 1996, and the calendar year 1995 cost report established the per diem rate for
fiscal year 1997. Bryant Health Care Ctr. v. Ohio Dept. of Job & Family Servs., 10th Dist.
No. 13AP-263, 2014-Ohio-92, ¶ 6. Thus, the facilities' calendar year 2003 cost reports
established the facilities per diem rates for fiscal year 2005. The per diem rate was the
amount the facility received per resident per day. Id. at ¶ 5.
{¶ 7} In the days audits, the department reviewed the days the facilities were paid
for rendering services to Medicaid recipients ("patient days") and reviewed the funds the
facilities collected from their Medicaid recipients ("patient liability"). In reviewing the
patient days, the department sought to determine whether the facilities actually provided
each resident care for the number of days the facility claimed to have provided such care.
See Clifton Care Ctr. v. Ohio Dept. of Job & Family Servs., 10th Dist. No. 12AP-709, 2013-
Ohio-2742, ¶ 15; Meadowbrook Care Ctr. v. Ohio Dept. of Job & Family Servs., 10th Dist.
No. 06AP-871, 2007-Ohio-6534, ¶ 14. In reviewing the patient liability amounts, the
department assessed whether CHS had collected the proper amount of contribution from
each resident. Medicaid recipients may be required to contribute to the cost of their care
depending on their income, and the difference between "the individual's patient liability
and the monthly medicaid cost of care is the medicaid vendor payment amount." Ohio
Adm.Code 5101:1-39-22.2(B). The department audited the patient days and patient
liability amounts for the following facilities during the following fiscal years: Carington
Park, Terrace View Gardens, Vandalia Park, Franklin Ridge, and East Galbraith for 2003,
2004, 2005, and 2006; Glen Meadows for 2004, 2005, and 2006; and Wellington Manor
for 2005 and 2006.
5A state fiscal year went from July 1 to June 30; for example, state fiscal year 2005 went from July 1, 2004
to June 30, 2005.
No. 18AP-897 4
{¶ 8} The hearing before the department proceeded in two phases. Phase one
concerned the threshold issue of whether the department, acting through the auditing firm
Clifton Gunderson, had conducted qualifying audits of CHS's 2003 cost reports. The phase
one hearings occurred on September 28, September 29, and October 5, 2009. The hearing
examiner concluded the department had conducted audits of the 2003 cost reports.
{¶ 9} Phase two concerned the merits of the department's proposed audit
adjustments under both the cost report audits and the days audits. The phase two hearings
occurred on December 10 and 11, 2012, and January 22, January 23, January 24, April 8,
April 9, April 10, and May 17, 2013. One of the issues addressed at the phase two hearings
was the department's disallowance of certain consulting costs from the 2003 cost reports
based on the liquidation of liabilities rule. Prior to the start of the phase two hearings, CHS
filed a motion in limine seeking to block all evidence and testimony relating to the
liquidation of liabilities rule. The hearing examiner denied CHS's motion.
{¶ 10} The consulting costs at issue concerned some of the facilities contracts with
Strategic Nursing Systems, Inc. ("Strategic") and Providers Choice Administrative Services,
Inc. ("Providers Choice"). The parties stipulated that Carington Park, Terrace View
Gardens, Franklin Ridge, Vandalia Park, and East Galbraith contracted with Strategic for
direct care consulting services in 2003. The parties stipulated that Carington Park, Terrace
View Gardens, Franklin Ridge, Vandalia Park, and East Galbraith contracted with
Providers Choice for indirect care consulting services in 2003. The noted facilities reported
their costs from Strategic and Providers Choice on their 2003 cost reports. Although the
parties did not enter into any stipulations regarding Glen Meadows and Wellington Manor,
these facilities reported costs related to Strategic on their three-month cost reports.
{¶ 11} Carington Park, Terrace View Gardens, Franklin Ridge, and Vandalia Park
entered into yearlong contracts with both Strategic and Providers Choice beginning on
January 1, 2003. East Galbraith entered into six-month contracts with Strategic and
Providers Choice beginning on July 1, 2003. The contracts with both Strategic and
Providers Choice provided for annual services ("Annual Services") and stated that the fees
for the Annual Services would be payable in monthly installments. The monthly invoices
issued throughout 2003 pursuant to the Annual Services portions of the contracts stated
No. 18AP-897 5
the invoices were "due upon receipt of invoice." (State's Ex. 58, 64, 93, 99, 120, 126, 155,
158, and 182.) The facilities paid the Annual Services monthly invoices by check.
{¶ 12} The contracts between Carington Park, Terrace View Gardens, Franklin
Ridge, East Galbraith, and Strategic, as well as the contracts between Carington Park,
Terrace View Gardens, Franklin Ridge, Vandalia Park, East Galbraith, and Providers
Choice, also contained attachments providing for additional enhanced services ("Enhanced
Services"). The attachments stated that the entire fee for the Enhanced Services would be
invoiced to the facilities on December 31, 2003. The noted facilities issued promissory
notes to Strategic and Providers Choice on December 31, 2003 as payment for the
Enhanced Services fees.
{¶ 13} The December 31, 2003 promissory notes issued from the facilities to
Strategic stated the unpaid principal and accrued interest would be payable in monthly
installments beginning August 1, 2005. The December 31, 2003 promissory notes issued
from the facilities to Providers Choice stated the unpaid principal and accrued interest
would be payable in monthly installments beginning February 1, 2005. The facilities paid
the promissory notes pursuant to their terms and, thus, did not make payments on the
notes until 2005.
{¶ 14} Following its initial audit of CHS, Clifton Gunderson disallowed the Strategic
and Providers Choice costs from the 2003 cost reports due to lack of documentation and a
suspected related party issue.6 After CHS produced documentation during discovery to
support the Strategic and Providers Choice costs, the auditors identified the liquidation of
liabilities issue. At the beginning of the phase two hearings, the parties stipulated that the
department would proceed on the liquidation of liabilities issue as the proposed basis for
disallowance of the consulting costs.
{¶ 15} Emily Hess, a senior manager at Clifton Gunderson who oversaw the CHS
audit, explained there was a hierarchy of authorities the auditors used to determine what
6The auditors noted a suspected related party issue because the owners of CHS reported owning Strategic
on their 2004 tax returns, and CHS failed to produce documentation to the auditors demonstrating that
CHS did not own Strategic or Providers Choice in 2003. During discovery, CHS produced a purchase
agreement demonstrating that the owners of CHS purchased Strategic on August 29, 2004 for $4.6 million.
When CHS purchased Strategic, it owed Strategic $12 million. Thus, after the purchase CHS "owed the
money to themselves. Strategic ha[d] a receivable of $12 million. The companies had a payable of $12
million. And when it was acquired, it became part of the combination, and they eliminated." (Tr. Vol. VII at
894.)
No. 18AP-897 6
costs were allowable on the 2003 cost reports. The hierarchy, contained in Ohio Adm.Code
5101:3-3-01(A), consisted in order of authority of the Ohio Revised Code, the Ohio
Administrative Code, Title 42 of the Code of Federal Regulations ("C.F.R.") Chapter IV, the
Provider Reimbursement Manual7 ("PRM"), and Generally Accepted Accounting Principles
("GAAP"). The liquidation of liabilities rule is contained in 42 C.F.R. 413.100 and PRM
2305. Because neither the Ohio Revised Code nor the Ohio Administrative Code address
the timely liquidation of liabilities for cost reporting purposes, the auditors followed the
hierarchy to apply 42 C.F.R. 413.100 and PRM 2305 to the 2003 cost reports.
{¶ 16} Hess explained that under the liquidation of liabilities rule, "[i]n order to be
claimed on the cost reports" a short-term liability "must be expended or funds expended
within a year of that cost report period." (Tr. Vol. II at 113.) Thus, for a short-term liability
to be claimed on the 2003 cost report, the facility "would have to have those funds expended
basically by the end of 2004 or 12/31/2004." (Tr. Vol. II at 111.) A short-term liability is a
liability payable "within 12 months." (Tr. Vol. II at 113.) Because the Strategic and
Providers Choice invoices were due upon receipt, Hess stated the invoices were all short-
term liabilities.
{¶ 17} Hess noted that "most of the[] transactions" under the Annual Services
portions of the contracts were allowable because the facilities paid the monthly invoices in
either 2003 or 2004. However, Hess noted a few transactions under the Annual Services
portions of the contracts which were not allowable because they were not paid until 2005.
For example, Carington Park paid the November 30, 2003 Strategic Annual Services
monthly invoice on March 28, 2005.
{¶ 18} Hess explained that PRM 2305 provided that if a short-term liability was paid
by check or negotiable instrument, the instrument had "to be cashed and paid" and "funds
transferred from one entity to the other" within "one year of the cost report period end
date." (Tr. Vol. II at 114-15.) Accordingly, because the facilities did not transfer any funds
to redeem the December 31, 2003 promissory notes until 2005, over one year after the end
of the 2003 cost reporting period, Hess stated that the Enhanced Services costs were not
allowable on the 2003 cost reports. Hess noted the payments made toward the promissory
7 The Provider Reimbursement Manual is accessible at https://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021929.html.
No. 18AP-897 7
notes in 2005 "would be allowed on the 2005 cost reports," and the payments made toward
the notes in 2006 would be allowable on the "2006 cost report," and so on for the remaining
years. (Tr. Vol. VI at 134.)
{¶ 19} CHS presented testimony from Bert Cummins, John Fleischer, and John
Hapchuk to support its contention that the liquidation of liabilities rule did not apply to the
2003 cost reports. Cummins and Fleischer, both certified public accountants whose work
focused on the long-term care industry in Ohio, stated they had never seen the department
apply the liquidation of liabilities rule in an audit. Cummins asserted that the liquidation
of liabilities rule could not apply to the 2003 cost reports because there was "no way that
costs can be disallowed out of the 2003 cost report period and placed into a subsequent
payment period." (Tr. Vol. II at 747-48.)
{¶ 20} Fleischer explained that because 42 C.F.R. 413.100 and PRM 2305 were
Medicare rules, he was "not so sure" if the rules applied "for Medicaid." (Tr. Vol. II at 244.)
However, Fleischer affirmed that the C.F.R. and the PRM were in the hierarchy of
authorities applicable to Ohio Medicaid cost reports. Fleisher acknowledged the
requirements of PRM 2305 but stated that in his opinion "if you were to take an ordinary
expense and make it part of a long-term liability, I think at that point you're done. The
liability has been liquidated within one year." (Tr. Vol. II at 240-41.)
{¶ 21} Fleischer also noted the liquidation of liabilities rule was "designed for an
ongoing reimbursement system." (Tr. Vol. II at 301.) Because the General Assembly
changed Ohio's Medicaid "reimbursement system legislatively" in 2004, "where they
weren't going to use the cost report anymore," Fleischer asserted that the rules no longer
"[made] sense." (Tr. Vol. II at 301.) Fleischer affirmed that the "rules made sense prior to
the change in legislation." (Tr. Vol. II at 301.)
{¶ 22} Hapchuk worked at the federal level as an auditor for the Medicare and
Medicaid programs in the United States Department of Health and Human Services, Office
of the Inspector General. Hapchuk noted that, although the PRM was "a Medicare manual,"
because Ohio had "deemed it in part of its hierarchy of criteria, it applies to Medicaid too."
(Tr. Vol. IV at 484, 486-87.)
{¶ 23} Hapchuk explained that 42 C.F.R. 413.100 applied to "health care providers
not subject to prospective payment[]" systems. (Tr. Vol. IV at 509.) Hapchuk noted that in
No. 18AP-897 8
the Medicare prospective payment system, "payment [was] not dependent upon what costs
[providers] incur, it's dependent upon what type of services that they perform." (Tr. Vol.
IV at 540.) Thus, Hapchuk stated the liquidation of liabilities rule did not apply in Ohio in
2003, because Ohio used "[a] prospective payment system" and had "moved away from the
cost reimbursement to basically setting prices." (Tr. Vol. IV at 510.)
{¶ 24} The department called Julie Evers, the section chief for disability and aging
policy at the department, to testify regarding the Ohio Medicaid reimbursement systems.
Evers explained that Ohio used a "prospective cost-based system" of reimbursement from
fiscal year 1994 to fiscal year 2005. (Tr. Vol. IV at 1009.) In the prospective cost-based
system, the department used the costs reported in a facility's annual "cost report to
establish a prospective rate for the subsequent fiscal year," but did not "go back and
reconcile it to what the provider actually spent in that period." (Tr. Vol. IV at 1009-11.)
Thus, in the prospective cost-based system each facility received a unique per diem rate
"based upon their actual costs" reported on their cost report. (Tr. Vol. IV at 1029-30.)
{¶ 25} Beginning on July 1, 2004, Ohio began to transition to a price-based
prospective system. Under the price-based prospective system, the department paid
"similarly-situated homes the same price subject to a case mix adjustment." (Tr. Vol. IV at
1034.) Nursing facilities continue to file calendar year cost reports under the price-based
system, but the department uses the cost reports to "look[] to the peer group experience"
rather than to establish a unique per diem rate. (Tr. Vol. IV at 1034.) Evers explained that
the hierarchy of authority contained in Ohio Adm.Code 5101:3-3-01(A) applied to the cost
reports filed under both the prospective cost-based system and the price-based prospective
system.
{¶ 26} On February 22, 2013, the department filed a motion in limine to preclude
CHS from offering evidence concerning unpaid patient days and other unpaid claims for
service. The hearing examiner granted the department's motion in limine on March 15,
2013.
{¶ 27} At the phase two hearings, the department submitted exhibits containing
reports of examination setting forth the department's adjustments to the patient days and
patient liability amounts. The department relied on the reports of examination as prima
facie evidence to support its case in the days audits.
No. 18AP-897 9
{¶ 28} On October 31, 2015, the hearing examiner issued a report and
recommendation adopting the department's proposed adjustments under both the days
audits and cost report audits. The hearing examiner concluded that the reports of
examination depicting the department's adjustments to the patient days and patient
liability amounts were prima facie evidence of those adjustments. As CHS failed to present
evidence to "rebut [the department's] prima facie evidence with respect to patient days and
patient liability adjustments," the hearing examiner concluded the department's
adjustments in the days audits were correct. (Report & Recomm. at 12.)
{¶ 29} The hearing examiner observed that, although the C.F.R. and the PRM were
regulations and interpretive guidelines "for Medicare cost reports," by including these
materials in the hierarchy of authorities contained in Ohio.Adm Code 5101:3-3-01, "Ohio
adopted these regulations to determine allowable costs for Medicaid cost reports in Ohio."
(Report & Recomm. at 68.) Additionally, the hearing examiner noted that "[w]hether costs
are allowable are determined by the law in effect at the time," such that "[a] future change
in the reimbursement system [did] not provide justification to ignore the cost reporting
laws in effect at the time of filing cost reports." (Report & Recomm. at 49.) As such, the
hearing examiner concluded that the liquidation of liabilities rule contained in 42 C.F.R.
413.100 and PRM 2305 applied to the facilities' 2003 cost reports.
{¶ 30} As the "Strategic and Providers Choice Annual Services invoices and the
Strategic and Providers Choice Enhanced Services invoices were due upon receipt," the
hearing examiner held that the invoices were "short-term liabilities." (Report & Recomm.
at 68.) Although most of the monthly invoices issued under the Annual Services portions
of the contracts were liquidated within one year of the end of the 2003 cost reporting
period, the hearing examiner noted several Annual Services invoices which were not
allowable because they were not paid until 2005. The hearing examiner observed that
"Terrace View Gardens, Franklin Ridge, Vandalia Park, Glen Meadows, and Wellington
Manor paid the Strategic Annual Services December 2003 invoices by check dated March
2005," that "Carington Park paid the Strategic Annual Services November 2003 invoice by
check dated March 2005 and the Strategic Annual Services December 2003 invoice by
check dated April 2005," and that East Galbraith did not pay any of the 2003 Providers
Choice Annual Services invoices until 2005. (Report & Recomm. at 64-65.)
No. 18AP-897 10
{¶ 31} Regarding the promissory notes issued as payment for the Enhanced Services
portions of the contracts, the hearing examiner observed that "none of the facilities' assets
were transferred until 2005, over one year from the end of the 2003 cost report period."
(Report & Recomm. at 23.) As such, the hearing examiner concluded the Enhanced
Services costs were not allowable on the 2003 cost reports.
{¶ 32} The hearing examiner recommended that the department adopt the
proposed audit adjustments and order CHS to pay back to the department $11,111,557.96
in Medicaid provider overpayments.
{¶ 33} On October 3, 2016, the department issued an adjudication order adopting
the hearing examiner's findings of fact, conclusions of law, and recommendations. CHS
appealed the adjudication order to the common pleas court.
{¶ 34} On March 16, 2017, CHS filed a brief in the common pleas court. CHS
asserted that the hearing examiner was unfairly biased in favor of the state, and that the
department erred in applying the liquidation of liabilities rule to the consulting costs on the
2003 cost reports. CHS further asserted that the department committed reversible error
by refusing to hear evidence concerning the unpaid days and unpaid claims, and by
preventing CHS from rebutting the department's prima facie case in the days audits. The
department filed a brief responding to CHS's arguments on May 9, 2017, and CHS filed a
reply brief on May 30, 2017.
{¶ 35} On October 30, 2018, the common pleas court issued a decision and entry
affirming in part and reversing in part the department's adjudication order. The court
found no merit to CHS's contention that the hearing examiner was unfairly biased and
"summarily reject[ed]" CHS's contention that it was "improperly foreclosed from seeking
recovery for the 'unpaid days.' " (Decision at 2.) The court, however, agreed that the
department erred in applying the liquidation of liabilities rule. In discussing the liquidation
of liabilities rule, the court noted only the promissory notes issued as payment for the
Strategic Enhanced Services invoices; the court did not address Providers Choice or the
Annual Services monthly invoices.
{¶ 36} The court observed that the department had followed the Ohio Adm.Code
5101:3-3-01(A) hierarchy of authorities "in applying Medicare's timely liquidation of
liability rule set forth in 42 CFR 413.100 and §2305 of the Provider Reimbursement
No. 18AP-897 11
Manual." (Decision at 6.) However, the court concluded the department had "ignor[ed] the
competent and credible evidence demonstrating that Medicare would not have applied the
rule to the transaction at issue." (Decision at 8.) Specifically, the court noted that
Hapchuk's testimony, the Federal Register, and Abington Mem. Hosp. v. Burwell, 216
F.Supp.3d 110 (D.D.C.2016), demonstrated that the liquidation of liabilities rule did not
apply in the Medicare prospective payment system. As Ohio in 2003 reimbursed Medicaid
providers on a prospective basis, the court concluded that the "liquidation of liabilities rule
was not applicable to the costs at issue in 2003." (Decision at 10.) The court also "adopt[ed]
and incorporate[d] in full the reasoning set forth in [CHS's] Reply Brief at pages 17 to 28"
in reaching its conclusion. (Decision at 10.)
II. Assignments of Error
{¶ 37} The department assigns the following single assignment of error for our
review on appeal:
The lower court erred in concluding that the Department
incorrectly construed and applied the liquidation-of-liabilities
rule to disallow the consulting costs at issue.
{¶ 38} CHS cross-appeals, assigning the following four assignments of error for our
review:
[1.] Did [the department] deprive CHS of procedural due
process by effectively failing to afford CHS a R.C. 119 hearing
as required under federal and state law?
[2.] Did [the department] improperly grant the motion in
limine to exclude CHS from offering evidence on patient days
when it offered several exhibits itself on patient days which the
hearing officer mischaracterized as "prima facie evidence"?
[3.] By cheating CHS out of patient days, did [the department]
impermissibly shift costs to Medicare beneficiaries and other
payers?
[4.] By artificially lowering patient days for fiscal year 2003, is
[the department] failing to observe fiscal responsibility given
the resulting higher reimbursement rate to be applied to fiscal
years 2004-2009?
III. Standard of Review
No. 18AP-897 12
{¶ 39} In an administrative appeal pursuant to R.C. 119.12, the common pleas court
must consider the entire record to determine whether reliable, probative, and substantial
evidence supports the agency's order and whether the order is in accordance with law. Univ.
of Cincinnati v. Conrad, 63 Ohio St.2d 108, 110-11 (1980). Reliable, probative, and
substantial evidence has been defined as follows:
(1) "Reliable" evidence is dependable; that is, it can be
confidently trusted. In order to be reliable, there must be a
reasonable probability that the evidence is true. (2) "Probative"
evidence is evidence that tends to prove the issue in question;
it must be relevant in determining the issue. (3) "Substantial"
evidence is evidence with some weight; it must have
importance and value.
Our Place, Inc. v. Ohio Liquor Control Comm., 63 Ohio St.3d 570, 571 (1992).
{¶ 40} The trial court's "review of the administrative record is neither a trial de
novo nor an appeal on questions of law only, but a hybrid review in which the court 'must
appraise all the evidence as to the credibility of the witnesses, the probative character of the
evidence, and the weight thereof.' " Lies v. Ohio Veterinary Med. Bd., 2 Ohio App.3d 204,
207 (1st Dist.1981), quoting Andrews v. Bd. of Liquor Control, 164 Ohio St. 275, 280
(1955). The trial court "must give due deference to the administrative resolution of
evidentiary conflicts," although "the findings of the agency are by no means conclusive."
Conrad at 111. The common pleas court conducts a de novo review of questions of law,
exercising its independent judgment in determining whether the administrative order is "
'in accordance with law.' " Ohio Historical Soc. v. State Emp. Relations Bd., 66 Ohio St.3d
466, 471 (1993), citing R.C. 119.12.
{¶ 41} An appellate court's review of an administrative decision is more limited than
that of the common pleas court. Pons v. Ohio State Med. Bd., 66 Ohio St.3d 619, 621 (1993).
The appellate court is to determine only whether the common pleas court abused its
discretion. Id.; Lorain City Bd. of Edn. v. State Emp. Relations Bd., 40 Ohio St.3d 257, 261
(1988). The term "abuse of discretion" connotes more than an error of law or judgment; it
implies that the court's attitude is unreasonable, arbitrary, or unconscionable. Blakemore
v. Blakemore, 5 Ohio St.3d 217, 219 (1983). Absent an abuse of discretion, this court may
not substitute its judgment for that of the administrative agency or the trial court. Pons at
621. However, on the question of whether the agency's order was in accordance with the
No. 18AP-897 13
law, this court's review is plenary. Kistler v. Conrad, 10th Dist. No. 04AP-1095, 2006-
Ohio-3308, ¶ 9.
IV. Department's Appeal Proper Pursuant to R.C. 119.12(N)
{¶ 42} Initially, we address whether the department has the statutory authority to
bring the present appeal. R.C. 119.12(N) provides for appeals from a common pleas court's
ruling on an agency's order. R.C. 119.12(N) states:
The judgment of the court shall be final and conclusive unless
reversed, vacated, or modified on appeal. These appeals may be
taken either by the party or the agency * * *. An appeal by the
agency shall be taken on questions of law relating to the
constitutionality, construction, or interpretation of statutes
and rules of the agency, and, in the appeal, the court may also
review and determine the correctness of the judgment of the
court of common pleas that the order of the agency is not
supported by any reliable, probative, and substantial evidence
in the entire record.
{¶ 43} Thus, R.C. 119.12(N) "allows an agency the right to appeal only on questions
of law pertaining to state statutes as well as rules and regulations which were promulgated
by the agency." Miller v. Dept. of Indus. Relations, 17 Ohio St.3d 226, 226-27 (1985). See
Katz v. Dept. of Liquor Control, 166 Ohio St. 229, 232 (1957). "Once the appeal is perfected
on these grounds, the appellate court has jurisdiction to review the lower court's ruling as
to the particular question of law and whether it is supported by any reliable, probative and
substantial evidence." Miller at 227. "The key is that the trial court actually rule on a
question of law that pertains to the constitutionality, construction or interpretation of a
statute or agency rule." Enertech Elec. v. W. Geauga Bd. of Edn., 10th Dist. No. 96AP-370
(Sept. 3, 1996).
{¶ 44} The common pleas court acknowledged that Ohio Adm.Code 5101:3-3-01(A)
made 42 C.F.R. 413.100 and PRM 2305 applicable to the 2003 cost reports. However, the
court held that neither rule applied to the consulting costs at issue on CHS's 2003 cost
reports. The court's ruling effectively interpreted Ohio Adm.Code 5101:3-3-01(A) to mean
that there were exceptions to the application of the rules identified in Ohio Adm.Code
No. 18AP-897 14
5101:3-3-01(A). As the common pleas court's ruling interpreted Ohio Adm.Code 5101:3-3-
01(A), the department may appeal the court's ruling pursuant to R.C. 119.12(N). See
Enertech Elec.; Tiggs v. Ohio Dept. of Job & Family Servs., 8th Dist. No. 106022, 2018-
Ohio-3164, ¶ 17.
V. Department's Assignment of Error – The Liquidation of Liabilities Rule
Applied to the 2003 Cost Reports
{¶ 45} The department's sole assignment of error asserts the common pleas court
erred in concluding that the liquidation of liabilities rule did not apply to the consulting
costs contained in CHS's 2003 cost reports.
{¶ 46} "Medicaid is a cooperative federal-state program through which the federal
government provides financial assistance to states so that they may furnish medical care to
needy individuals." Drake Ctr. v. Dept. of Human Servs., 125 Ohio App.3d 678, 684 (10th
Dist.1998), citing Wilder v. Virginia Hosp. Assn., 496 U.S. 498 (1990), citing 42 U.S.C.
1396. States that choose to participate in Medicaid must comply with certain requirements
imposed by the Medicaid Act and the regulations adopted by the Secretary of Health and
Human Services ("Secretary"). Id., citing Wilder. To qualify for federal assistance, a state
is required to have an approved plan for medical assistance establishing a scheme for
reimbursing participating health care providers. Id. at 685, citing Wilder.
{¶ 47} Thus, the administration of the Medicaid program "is left to the individual
participating states according to a federally approved plan." Morning View Care Ctr.-
Fulton v. Ohio Dept. of Human Servs., 148 Ohio App.3d 518, 2002-Ohio-2878, ¶ 17 (10th
Dist.). In contrast, Medicare is a "federal program that provides health insurance to the
elderly and disabled." Baptist Med. Ctr. v. Burwell, U.S.D.C.D.C. No. 11-cv-0899 (Feb. 28,
2019). See Sun Towers, Inc. v. Heckler, 725 F.2d 315, 318 (5th Cir.1984), citing 42 U.S.C.
1395c; Natl. Fedn. of Indep. Business v. Sebelius, 567 U.S. 519, 630 (2012) (observing that
"Congress elected to nationalize health coverage for seniors through Medicare," and that it
"could similarly have established Medicaid as an exclusively federal program" but did not,
opting instead to "g[ive] the States the opportunity to partner in the [Medicaid] program's
administration and development").
No. 18AP-897 15
{¶ 48} To participate in the Medicaid program in Ohio, each facility subject to a
provider agreement must file a cost report covering the calendar year or portion of the
calendar year during which the facility participated in the Medicaid program. R.C.
5111.26(A)(1)(a); Ohio Adm.Code 5101:3-3-20; St. Francis Home, Inc. v. Ohio Dept. of Job
& Family Servs., 10th Dist. No. 06AP-287, 2006-Ohio-6147, ¶ 1. The costs included on a
cost report must be "allowable," presented in accordance with "department rules," and
must be "documented, reasonable, and related to patient care." R.C. 5111.27(B)(3); Ohio
Adm.Code 5101:3-3-21(A)(2)(c).
{¶ 49} A cost is considered "reasonable" if it is "an actual cost that is appropriate and
helpful to develop and maintain the operation of patient care facilities" and "does not
exceed what a prudent buyer pays for a given item or services." Ohio Adm.Code 5101:3-3-
01(AA). Ohio Adm.Code 5101:3-3-01(A) defines an allowable cost as "those costs incurred
for certified beds in a facility as determined by [the department] to be reasonable." Ohio
Adm.Code 5101:3-3-01(A) further provides:
Unless otherwise enumerated in Chapter 5101:3-3 of the
Administrative Code, allowable costs are also determined in
accordance with the following reference material, as currently
issued and updated, in the following priority:
(1) Title 42 Code of Federal Regulations (C.F.R.) Chapter IV;
(2) The provider reimbursement manual ("health care
financing administration HCFA Publication 15-1,"); or
(3) Generally accepted accounting principles.
{¶ 50} Title 42 of the C.F.R. is the public health title; Chapter IV deals with the
Centers for Medicare and Medicaid Services ("CMS"). The United States Department of
Health and Human Services administers the Medicaid and Medicare programs through
CMS. Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163, 168 (2d Cir.2006).
{¶ 51} 42 C.F.R. 413.100, titled "[s]pecial treatment of certain accrued costs," is
contained in the subchapter of Chapter IV applicable to Medicare.8 42 C.F.R. 413.100
8In the portion of CHS's reply brief adopted by the trial court, CHS asserted that "presumably" only C.F.R.
provisions "applicable to Medicaid" should apply to Ohio cost reports. (CHS's Trial Court Reply Brief at 17.)
Ohio Adm.Code 5101:3-3-01(A) does not contain such a limitation, but rather cites generally to all of 42
No. 18AP-897 16
recognizes that "under the accrual basis of accounting, revenue is reported in the period in
which it is earned and expenses are reported in the period in which they are incurred." 42
C.F.R. 413.100(a). 42 C.F.R. 413.100 alters the accrual basis of accounting principles for
costs related to short-term liabilities, vacation pay, and all-inclusive paid days off, sick pay,
compensation of owners, non-paid workers, and FICA and other payroll taxes. For these
costs, "Medicare does not recognize the accrual of costs unless the related liabilities are
liquidated timely." 42 C.F.R. 413.100(c)(1). Regarding short-term liabilities, 42 C.F.R.
413.100 provides that "a short-term liability, including the current portion of a long-term
liability (for example, mortgage interest payments due to be paid in the current year), must
be liquidated within 1 year after the end of the cost reporting period in which the liability is
incurred." 42 C.F.R. 413.100(c)(2)(i)(A). 42 C.F.R. 413.100, however, does not define what
"liquidation" means in the context of the rule.
{¶ 52} The PRM "contains interpretive guidelines for implementing federal
Medicare * * * regulations. The manual, originally issued by the Health Care Financing
Administration, is maintained by its successor, the Centers for Medicare and Medicaid
Services." Bryant Health Care at ¶ 42. See also Abraham Lincoln Mem. Hosp. v. Sebelius,
698 F.3d 536, 542 (7th Cir.2012); Dept. of Health & Mental Hygiene v. Riverview Nursing
Ctr., Inc., 104 Md.App. 593, 598 (1995), n.3 (noting the "PRM contains Medicare
reimbursement guidelines * * * which elaborate upon the Medicare reimbursement
regulations found in 42 C.F.R. Part 413"). PRM 2305, titled "Liquidation of Liabilities,"
mirrors 42 C.F.R. 413.100 and states that a "short term liability must be liquidated within
1 year after the end of the cost reporting period in which the liability is incurred." Section
2305 further provides:
Liquidation must be made by check or other negotiable
instrument, cash or legal transfer of assets such as stock, bonds,
real property, etc. Where liquidation is made by check or other
negotiable instrument, these forms of payment must be
redeemed through an actual transfer of the provider's assets
within the time limits specified in this section. Where the
liability (1) is not liquidated within the 1-year time limit, or (2)
does not qualify under the exceptions specified in §§ 2305.1 and
2305.2, the cost incurred for the related goods and services is
C.F.R. Chapter IV. Notably, none of the Medicaid specific C.F.R. provisions that CHS cited to in its trial
court reply brief address cost reporting. In contrast, 42 C.F.R. 413.100 specifically addresses cost reporting.
No. 18AP-897 17
not allowable in the cost reporting period when the liability is
incurred, but is allowable in the cost reporting period when the
liquidation of the liability occurs.
{¶ 53} PRM 2305.1 provides that if, within the one-year time limit, the provider
furnishes to its fiscal intermediary9 sufficient written justification for non-payment of the
liability, the intermediary may grant an extension for good cause not to extend beyond three
years. Section 2305.2 states that the liquidation of liabilities rule does not apply to PRM
sections 220, 704.5, 2146.2, or the PRM sections which require liquidation within 75 days
after the end of the cost reporting period. Neither exception applies in the present case.
{¶ 54} CHS asserts that the liquidation of liabilities rule, as stated in 42 C.F.R.
413.100 and PRM 2305, should not apply to the present case because the rule "is not an
[Ohio Department of Medicaid] rule; it is a federal Medicare rule." (Emphasis sic.)
(Appellee's Brief at 20.) Although 42 C.F.R. Chapter IV and the PRM are rules and
interpretative guidelines applicable to Medicare cost reports, Ohio incorporated these rules
into Ohio Adm.Code 5101:3-3-01(A) thereby making the liquidation of liabilities rule
applicable to Ohio Medicaid cost reports.
{¶ 55} Notably, other jurisdictions routinely incorporate and apply federal Medicare
guidelines to their state Medicaid programs. See Heartland of Beckley WV, LLC v. Bureau
for Med. Servs., Sup. Ct. of Appeals W.V. No. 15-0595 (Oct. 26, 2012) (noting the West
Virginia Medicaid regulations provide that "federal Medicare statutes, regulations, and
guidelines will be applied when federal and West Virginia Medicaid statutes, regulations,
and guidelines are silent on a given point"); In re McKerley Health Facilities, 145 N.H. 164(2000), quoting N.H. Admin. Rules, He-W 593.34 (providing that " '[d]ecisions governing
the allowability of costs not specifically detailed' " under the New Hampshire Medicaid
rules " 'shall be pursuant to the Medicare Provider Reimbursement Manual' "); Redding
Med. Ctr. v. Bonta, 75 Cal.App.4th 478, 484 (1999) (providing that allowable costs under
9 Fiscal intermediaries in Medicare handle the "[d]ay-to-day administration of the Medicare program."
Highland Dist. Hosp. v. Secretary of Health & Human Servs., 676 F.2d 230, 232 (1982). Fiscal
intermediaries are "private nongovernmental entities," often times insurance companies, that "enter into
contracts with Secretary, pursuant to the authority delegated by Congress in § 1395h, to serve as the
Secretary's agent for various functions, including auditing provider cost reimbursement requests." Id.
Accord Regents of the Univ. of California v. Burwell, 155 F.Supp.3d 31, 38 (D.C.C.2016) (noting that "fiscal
intermediaries * * * act as the Secretary's agents"). Thus, a fiscal intermediary is simply an agent of the
Secretary in the Medicare program.
No. 18AP-897 18
the California Medicaid program are to "be determined based on the Medicare provisions
of the Code of Federal Regulations and the PRM"); Beverly Health & Rehab. Servs. v.
Metcalf, 24 Va.App. 584, 594-96 (1997) (same — Virginia); Dept. of Health & Mental
Hygiene at 598 (same — Maryland); Hampton Nursing Cntr. v. State Health & Human
Serv. Finance Comm., 303 S.C. 143, 147 (1990) (same — South Carolina).
{¶ 56} The common pleas court concluded that the department ignored the evidence
demonstrating that Medicare would not have applied the liquidation of liabilities rule to the
consulting costs at issue. The record, however, demonstrates that the hearing examiner
addressed and distinguished the evidence cited by the common pleas court.
{¶ 57} Hapchuk testified that the liquidation of liabilities rule could not apply to the
2003 cost reports because Ohio utilized a prospective payment system. However, Hapchuk
admitted that he was not familiar with Ohio's cost reporting system and affirmed that he
did not know what was allowable on an Ohio Medicaid cost report. Hapchuk testified that
he did "not understand exactly what they, Ohio, did on its prospective payment system,"
noting that he had "not been given an opportunity to take a look at it." (Tr. Vol. IV at 516.)
The "only thing" Hapchuk reviewed to gain an understanding of Ohio's Medicaid
reimbursement system was a one-page document he printed off from the internet. (Tr. Vol.
IV at 546.) The one-page document stated, without further definition, that Ohio's Medicaid
reimbursement systems were "[r]etrospective 1980-91, Semi-prospective 1991-93,
Prospective 1993-2002, Pricing 2003-present." (State's Ex. 274.) Based on this document,
Hapchuk stated that Ohio's Medicaid reimbursement system was a "pricing
[reimbursement system] from 2003." (Tr. Vol. IV at 636.)
{¶ 58} Hapchuk explained that the Medicare prospective payment system did not
depend on the costs a provider incurred, but rather depended on the services the provider
performed. Hapchuk noted that if Ohio had "continued on cost reimbursement" and not
"mov[ed] over to a prospective payment system" he would have said "okay, probably this
rule applies." (Tr. Vol. IV at 514-15.) Notably, when counsel for the department explained
that Ohio's prospective cost-based payment system used a provider's actual costs to set
rates, Hapchuk acknowledged that such a system was "not a pure prospective payment
system as the Medicare system is." (Tr. Vol. IV at 531.)
{¶ 59} The Federal Register addresses 42 C.F.R. 413.100 and explains that:
No. 18AP-897 19
Generally, under the Medicare program, health care providers
not subject to prospective payment are paid for the reasonable
costs of the covered items and services they furnish to Medicare
beneficiaries. [42 C.F.R. 413.100] pertains to all
services furnished by providers other than inpatient hospital
services * * * and certain inpatient routine services furnished
by skilled nursing facilities choosing to be paid on a prospective
payment basis * * *.
60 Fed.Reg. 33126, effective June 27, 1995.
{¶ 60} Abington Mem. Hosp., which the trial court also cited, follows the Federal
Register and notes that 42 C.F.R. 413.100 "was explicitly made inapplicable to inpatient
care that was subject to the [Medicare prospective payment system] payment scheme." Id.
at 122. However, Abington Mem. Hosp. further explained that the Medicare prospective
payment system " 'relie[d] on prospectively fixed rates for each category of treatment
rendered.' " Id. at 117, quoting Methodist Hosp. of Sacramento v. Shalala, 38 F.3d 1225,
1227 (D.C.Cir.1994). Thus, under the Medicare prospective payment system hospitals are
"given advance notice of the pre-established rates at which inpatient services will be
reimbursed," and hospitals are "reimbursed at those pre-set rates, irrespective of the costs
the hospital actually incurs." Id. at 117. Accord Atrium Med. Ctr. v. United States HHS, 766
F.3d 560, 564 (6th Cir.2014); Anna Jacques Hosp. v. Burwell, 797 F.3d 1155(D.C.Cir.2015). See Community Care, L.L.C. v. Leavitt, 477 F.Supp.2d 751, 754
(E.D.La.2007), quoting New GWO Report Examines Medicare PPS Effects on Nursing
Homes, 8 No. 1 Cal. Health L. Monitor 4 (2000) (explaining that the Balanced Budget Act
of 1997 made the Medicare prospective payment system, which is based on " 'fixed,
predetermined rates for each day of care,' " applicable to nursing facilities participating in
the Medicare program).
{¶ 61} In contrast to the Medicare prospective payment system, Evers explained
that Ohio's prospective cost-based system in 2003 used the actual costs reported on a
facility's annual cost report to establish the facility's unique per diem rate for the
subsequent fiscal year. Thus, while Ohio's reimbursement system was prospective, as it set
a rate for a future period, it was also based on actual costs. Accord Ohio Academy of
Nursing Homes v. Ohio Dept. of Job & Family Servs., 114 Ohio St.3d 14, 2007-Ohio-2620,
¶ 2 (observing that "[u]nder a 'prospective payment' system that has been in place since
No. 18AP-897 20
1993, Ohio reimburses a qualifying facility by paying it a per diem rate that is calculated
based on the actual costs incurred by the facility in a prior period"); Bryant Health Care
Ctr. at ¶ 5; Arcadia Acres v. Ohio Dept. of Job & Family Servs., 10th Dist. No. 06AP-738,
2007-Ohio-6853, ¶ 2.
{¶ 62} The hearing examiner addressed Hapchuk's testimony and concluded that
"[s]ince in Ohio, in 2003, the rates were based upon the reported costs incurred, not the
type of service performed, Ohio was not under a prospective payment system such as that
described by Mr. Hapchuk and used by Medicare." (Report & Recomm. at 31.)
Furthermore, the hearing examiner addressed the reliability issues present in Hapchuk's
testimony, noting that "Hapchuk admitted he was not familiar with the rules applicable to
Ohio's Medicaid cost reports" and that Hapchuk's understanding of Ohio's payment system
came from a "one-page document from the internet." (Report & Recomm. at 30.)
{¶ 63} The hearing examiner also addressed the Federal Register's statement that
42 C.F.R. 413.100 did "not apply to Medicare providers under a prospective payment
system." (Report & Recomm. at 43.) Again, because "providers in Ohio were reimbursed
based upon costs incurred rather than services provided," the hearing examiner concluded
that Ohio's prospective cost-based system differed from the Medicare prospective payment
system. (Report & Recomm. at 43.) Based on the differences between the Medicare and
Ohio Medicaid payment systems, the hearing examiner concluded that CHS's "argument
that 42 CFR 413.100 and PRM 2305 [did] not apply to [the] 2003 cost reports based upon
the reimbursement system in effect at the time [was] not well-taken." (Report & Recomm.
at 43.)
{¶ 64} Accordingly, the department addressed the evidence demonstrating that the
liquidation of liabilities rule did not apply to the Medicare prospective payment system.
The department concluded that the liquidation of liabilities rule could apply in Ohio's
prospective cost-based payment system because the system was based on reasonable costs
rather than set prices. The common pleas court abused its discretion by holding that the
department had ignored the evidence concerning Medicare's application of the liquidation
of liabilities rule.
{¶ 65} Furthermore, "the General Assembly created administrative bodies to
facilitate certain areas of the law by placing the administration of those areas before boards
No. 18AP-897 21
or commissions composed of individuals who possess special expertise." Parents
Protecting Children v. Korleski, 10th Dist. No. 09AP-48, 2009-Ohio-4549, ¶ 10, citing Club
3000 v. Jones, 10th Dist. No. 07AP-593, 2008-Ohio-5058, ¶ 29. Deference is afforded to
an administrative agency's interpretation of its own rules and regulations if such an
interpretation is consistent with statutory law and the plain language of the rule itself.
OPUS III-VII Corp. v. Ohio State Bd. of Pharmacy, 109 Ohio App.3d 102, 113
(10th Dist.1996). Accord Frisch's Restaurants, Inc. v. Ryan, 121 Ohio St.3d 18, 2009-
Ohio-2, ¶ 16; Sierra Club v. Koncelik, 10th Dist. No. 12AP-288, 2013-Ohio-2739, ¶ 24.
{¶ 66} We find that the department's conclusion that 42 C.F.R. 413.100 and PRM
2305 applied to the 2003 cost reports was entirely in keeping with and required by the plain
language of Ohio Adm.Code 5101:3-3-01(A). As such, the department's conclusion that the
liquidation of liabilities rule applied to the 2003 cost reports is correct.
{¶ 67} As the invoices issued under both the Annual Services and Enhanced Services
portions of the Strategic and Providers Choice contracts were due upon receipt, they were
short-term liabilities.10 Because the debts were short-term liabilities, Ohio Adm.Code
5101:3-3-01(A), 42 C.F.R. 413.100 and PRM 2305 required that the debts be liquidated
within one year of the end of the 2003 cost reporting period for the costs to be allowable on
the 2003 cost reports. As such, the costs associated with the Strategic and Providers Choice
Annual Services monthly invoices which were issued in 2003, but not paid until 2005, were
not allowable on the 2003 cost reports.
{¶ 68} The promissory notes the facilities issued to pay the Strategic and Providers
Choice Enhanced Services invoices were negotiable instruments. As such, PRM 2305
provided that the notes had to be redeemed by an actual transfer of assets within one year
of the end of the 2003 cost reporting period. See Professional Rehab. Outpatient Servs. v.
Health Care Fin. Admin., S.D.Tex. H-00-2526 (Dec. 6, 2001) (applying the liquidation of
liabilities rule and concluding that, because a promissory note issued in 1995 was payable
by "December 31, 1998 — three years following the end of the 1995 cost reporting period"
the promissory note "did not meet this liquidation requirement"); Med. Rehab. Servs., P.C.
v. Bowen, E.D. Mich. 87-CV-74547-DT (Sept. 6, 1989) (observing that pursuant to PRM
10Notably, in CHS's December 5, 2012 motion in limine, CHS acknowledged that the promissory notes were
"used to satisfy the short term liabilities." (Dec. 5, 2012 Mot. in Limine at 8.)
No. 18AP-897 22
2305, "the issuance of [the] promissory note [was] not evidence of liquidation, unless
plaintiff's assets were actually transferred to its creditor within one year of accrual").
{¶ 69} In the portion of CHS's reply brief adopted by the common pleas court, CHS
asserted that the "promissory notes at issue were long-term liabilities, not subject to a
Liquidation of Liabilities Rule." (CHS Trial Court Reply Brief at 20.) However, the
promissory notes were issued as payment for the Enhanced Services invoices, which were
short-term liabilities. The long-term nature of the promissory notes did not alter the fact
that they were issued to pay short-term liabilities.
{¶ 70} While the presentation of a promissory note is sufficient to liquidate a debt
for purposes of GAAP, the Medicare regulations which Ohio adopted in Ohio Adm.Code
5101:3-3-01(A) place additional requirements on this method of liquidation for cost
reporting purposes. The Federal Register explains that while GAAP is "used to present the
financial position of an organization," Medicare payment policy differs from GAAP as it
seeks to "prevent the outlay of Federal trust funds before they are needed to pay the costs
of providers' actual expenditures." 60 Fed.Reg. at 33129. Because a negotiable instrument
does not cause an immediate transfer of assets, the Medicare regulations place additional
requirements on negotiable instruments for cost reporting purposes.11 Otherwise,
providers could issue promissory notes and receive Medicare trust funds before ever
expending their own assets.
{¶ 71} The requirements imposed by PRM 2305 applied to the promissory notes
issued by the facilities to pay the Strategic and Providers Choice Enhanced Services
invoices. Because the facilities did not transfer any assets as payments toward the
promissory notes until 2005, beyond one year after the end of the 2003 cost reporting
period, the costs associated with the Strategic and Providers Choice Enhanced Services
invoices were not allowable on the facilities' 2003 cost reports.
{¶ 72} In the final analysis, Ohio Adm.Code 5101:3-3-01(A) plainly identifies 42
C.F.R. Chapter IV and the PRM as the reference materials to be used to determine whether
costs reported on an Ohio Medicaid cost report are allowable. Those reference materials,
at 42 C.F.R. 413.100 and PRM 2305, contain the liquidation of liabilities rule. The common
11 Although the promissory notes at issue were negotiable instruments under R.C. 1303.03(A) (Uniform
Commercial Code 3-104), the present case is concerned with the specific Ohio Medicaid cost reporting rules
rather than general rules concerning negotiable instruments.
No. 18AP-897 23
pleas court ruled that the liquidation of liabilities rule did not apply to the facilities' 2003
cost reports because the rule would not apply in the Medicare prospective payment system.
The department, however, distinguished the Medicare prospective payment system from
the Ohio prospective cost-based system, and concluded that the liquidation of liabilities
rule could apply in Ohio's prospective cost-based payment system. The common pleas
court erred in reversing the portion of the department's adjudication order applying the
liquidation of liabilities rule to the 2003 cost reports.
{¶ 73} Based on the foregoing, the department's sole assignment of error is
sustained.
VI. First & Second Assignments of Error on Cross-Appeal – CHS Not
Entitled to Introduce Evidence of Unpaid Days and Reports of
Examination Were Prima Facie Evidence
{¶ 74} CHS's first assignment of error asserts the department deprived CHS of a R.C.
Chapter 119 hearing. CHS asserts it did not receive a R.C. Chapter 119 hearing "on patient
days since the Hearing Officer granted the Department's motion in limine" to exclude CHS's
evidence of unpaid days and unpaid claims for service. (Cross-appellant's Brief at 21.)
CHS's second assignment of error asserts that the hearing examiner erred in granting the
department's motion in limine and in characterizing the department's exhibits as prima
facie evidence. As CHS's first and second assignments of error are related, we address them
jointly.
{¶ 75} The hearing examiner had the authority to admit or exclude evidence at the
administrative hearing. Our review is limited to determining whether the common pleas
court abused its discretion by failing to reverse the hearing examiner's evidentiary ruling.
HCMC, Inc. v. Ohio Dept. of Job & Family Servs., 179 Ohio App.3d 707, 2008-Ohio-6223,
¶ 57.
{¶ 76} In granting the department's motion to exclude the evidence of unpaid days
and unpaid claims for service, the hearing examiner observed that R.C. 5111.06 authorized
R.C. Chapter 119 hearings "for providers to challenge matters included in final fiscal audits,
which examine payments made to providers." (Mar. 15, 2013 Journal Entry at 4.) As an
audit examines payments made to providers, the hearing examiner concluded that
No. 18AP-897 24
"adjudication of claims for unpaid days and unpaid claims [were] not at issue in this
administrative hearing." (Mar. 15, 2013 Journal Entry at 4.)
{¶ 77} "[A]bsent specific statutory or constitutional authority, a party has no
inherent right to appeal from an order of an administrative agency." Springfield Fireworks,
Inc. v. Ohio Dept. of Commerce, 10th Dist. No. 03AP-330, 2003-Ohio-6940, ¶ 17. Accord
Section 4, Article IV, Ohio Constitution. R.C. 5111.06(B) provides:
The department shall do either of the following by issuing an
order pursuant to an adjudication conducted in accordance
with Chapter 119 of the Revised Code:
(1) Enter into or refuse to enter into a provider agreement with
a provider, or suspend, terminate, renew, or refuse to renew an
existing provider agreement with a provider;
(2) Take any action based upon a final fiscal audit of a provider.
{¶ 78} If a party is adversely affected by an order issued under R.C. 5111.06(B), the
party may "appeal to the court of common pleas of Franklin county in accordance with
section 119.12 of the Revised Code." R.C. 5111.06(C). Thus, a party has R.C. Chapter 119
appeal right from any action the department takes based on a final fiscal audit. Clifton Care
Ctr. at ¶ 12. An "audit" is defined as "a formal postpayment examination * * * of a Medicaid
provider's records and documentation to determine program compliance, the extent and
validity of services paid for under the Medicaid program and to identify any inappropriate
payments." Ohio Adm.Code 5101:3-1-27(B)(1). Thus, an audit reviews payment made to
"determine the amount of overpayment." Ohio Adm.Code 5101:3-1-27(B)(1).
{¶ 79} Accordingly, as an audit reviews payments, unpaid days and unpaid claims
for service are not reviewed by the department in an audit. See Clifton Care Ctr. at ¶ 17
(observing that "[s]ince [the department] never paid the claims at issue, it could not audit
them"). Accordingly, CHS had no right under R.C. 5111.06 to address the unpaid days and
unpaid claims at the R.C. Chapter 119 hearing on the final fiscal audits.12
12 CHS asserts that it was entitled to present evidence on the unpaid days and unpaid claims because in Ohio
Academy of Nursing Homes, Inc. v. Ohio Dept. of Job & Fam. Servs., 149 Ohio App.3d 413, 2002-Ohio-
4721 (10th Dist.), this court "ruled the department must adjudicate all issues at once in a final fiscal audit
pursuant to R.C. 5111.06(B)." (Cross-appellant's Brief at 22.) In Ohio Academy of Nursing Home, the court
held that for a R.C. Chapter 119 hearing to occur pursuant to R.C. 5111.06, " 'there must have been a final
fiscal audit, which impliedly means that all issues for the reimbursement period have been adjudicated.' "
No. 18AP-897 25
{¶ 80} CHS asserts that the R.C. Chapter 119 hearing was the only opportunity CHS
had to address its claims relating to the unpaid days and unpaid claims. However, Ohio
Adm.Code 5101:3-1-57(B) provides that "[o]ther administrative actions affecting the
provider's Medicaid program status which are not subject to hearings under Chapter 119 of
the Revised Code, may be reconsidered by the deputy director in the office where the
contestation arose." Notably, "denied claims and claim adjustments which may be
reconsidered" pursuant to Ohio Adm.Code 5101:3-1-57(B), are expressly identified as
"[a]ctions that do not provide [R.C. Chapter 119] hearing rights." Ohio Adm.Code 5101:6-
50-01(C)(9).
{¶ 81} Furthermore, "when an agency's decision is discretionary and, by statute, not
subject to direct appeal, a writ of mandamus is the sole vehicle to challenge the decision."
Ohio Academy of Nursing Homes v. Ohio Dept. of Job & Family Servs., 114 Ohio St.3d 14,
2007-Ohio-2620, ¶ 23. Accord State ex rel. Potts v. Comm. on Continuing Legal Edn., 93
Ohio St.3d 452, 457 (2001) (providing that "[m]andamus is the appropriate remedy where
no right of appeal is provided to correct an abuse of discretion by a public body");
Heartland Jockey Club, Ltd. v. Ohio State Racing Comm., 10th Dist. No. 98AP-1465
(Aug. 3, 1999). To the extent CHS contends that the department has yet to deny or
otherwise act on its claims for payment, a writ of mandamus is the proper vehicle to compel
an agency to act. State ex rel. GMC v. Indus. Comm., 117 Ohio St.3d 480, 2008-Ohio-1593,
¶ 9, citing State ex rel. Levin v. Schremp, 73 Ohio St.3d 733, 735 (1995) (holding that "[a]
mandamus action is thus appropriate where there is a legal basis to compel a public entity
to perform its duties under the law"); Morning View Care Ctr.-Fulton at ¶ 16.
{¶ 82} CHS asserts that when the department "offered testimony on its four exhibits
as to patient days" the department "waived the prima facie presumption" for those exhibits.
(Cross-appellant's Brief at 29.) The department initially introduced the reports of
examination detailing the department's adjustments to the patient days and patient liability
amounts as exhibits at the January 22, 2013 hearing. The department noted that it was
relying on the exhibits as its prima facie case in the days audits. At the April 8, 2013
Id. at ¶ 25, quoting trial court decision. The statement in Ohio Academy of Nursing Homes meant that all
issues pertaining to the audit had to be adjudicated during the reimbursement period. The statement did
not indicate that a facility could introduce any issue unrelated to the audit at a R.C. Chapter 119 hearing on
a final fiscal audit.
No. 18AP-897 26
hearing, the department introduced four exhibits to replace four of the exhibits previously
introduced at the January 22, 2013 hearing. The four revised exhibits cleared some of the
department's prior adjustments to patient days. The department submitted the
replacement exhibits as prima facie evidence of its adjustments to the patient days.
{¶ 83} CHS objected that the revised exhibits were unauthenticated. As such, the
department presented Kierstyn Canter, an audit manager at the department, to
authenticate the exhibits. Canter stated the four exhibits were created under her
supervision and were all kept in the ordinary course of the department's business. CHS
asserts that Canter's testimony waived the prima facie presumption on the four exhibits.
{¶ 84} Ohio Adm. Code 5101:6-50-09(A)(4) provides that "[a]ny audit report, report
of examination, exit conference report, or report of final settlement issued by [the
department] and entered into evidence is to be considered prima facie evidence of what it
asserts." "Prima facie evidence has been defined as that which is 'sufficient to support but
not to compel a certain conclusion and does no more than furnish evidence to be considered
and weighed but not necessarily accepted by the trier of the facts.' " Meadowwood Nursing
Facility v. Ohio Dept. of Job & Family Servs., 10th Dist. No. 04AP-732, 2005-Ohio-1263,
¶ 14, quoting Cleveland v. Keah, 157 Ohio St. 331, 337 (1952).
{¶ 85} "The presentation of evidence on some audit findings [does] not deprive [the
department] of all applicable presumptions" under Ohio Adm.Code 5101:6-50-09(A)(4).
Id. at ¶ 13. "However, to the extent that the witness testifies with respect to discernible
audit factors, then the presumption [in Ohio Adm.Code 5101:6-50-09(A)(4)] has no effect."
Id. As Canter simply authenticated the exhibits and did not testify regarding any
discernable audit factors, Canter's testimony did not invalidate the prima facie
presumption on the four exhibits.
{¶ 86} CHS contends that "[b]y granting the motion in limine, the Department
precluded CHS from offering evidence on patient days." (Cross-appellant's Brief at 4.)
However, the hearing examiner's ruling on the motion in limine only prevented CHS from
introducing evidence on unpaid days and unpaid claims. The hearing examiner's ruling did
not prevent CHS from presenting evidence on the patient days at issue in the audit or from
rebutting the department's prima facie evidence.
No. 18AP-897 27
{¶ 87} The trial court did not abuse its discretion by failing to reverse the hearing
examiner's evidentiary ruling on the unpaid days and unpaid claims or in upholding the
department's adjustments in the days audits. CHS's first and second assignments of error
on cross-appeal are overruled.
VII. Third & Fourth Assignments of Error on Cross-Appeal — Not Raised in
Common Pleas Court
{¶ 88} CHS's third assignment of error asserts the department impermissibly
shifted costs to Medicare beneficiaries and to other payers. CHS's fourth assignment of
error asserts the department failed to observe fiscal responsibility by failing to pay CHS for
the unpaid patient days in fiscal year 2003.
{¶ 89} CHS did not raise either argument contained in its third or fourth
assignments of error in the common pleas court. CHS's failure to raise these arguments in
the common pleas court forfeits these issues for appellate purposes. Edmands v. State
Med. Bd., 10th Dist. No. 16AP-726, 2017-Ohio-8215, ¶ 14. Accord Nunn v. Ohio Dept. of
Ins., 10th Dist. No. 18AP-114, 2018-Ohio-4030, ¶ 11 (noting that "[i]t is well established
that a party may not present new arguments for the first time on appeal"). As CHS has
forfeited these arguments, we overrule CHS's third and fourth assignments of error on
cross-appeal. Parker's Tavern v. Ohio Dept. of Health, 195 Ohio App.3d 22, 2011-Ohio-
3598, ¶ 11 (10th Dist.).
VIII. Conclusion
{¶ 90} Having sustained the department's sole assignment of error, CHS's four
assignments of error on cross-appeal are overruled, we reverse in part and affirm in part
the judgment of the Franklin County Court of Common Pleas.
Judgment affirmed in part, reversed in part, case remanded.
BRUNNER and NELSON JJ., concur.
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