Dept. Medical Assistance Svc v. Beverly Healthcare

COURT OF APPEALS OF VIRGINIA
Present: Judges Elder, Annunziata and Clements
Argued at Richmond, Virginia
DEPARTMENT OF MEDICAL ASSISTANCE SERVICES
OPINION BY
v. Record No. 0802-02-2 JUDGE JEAN HARRISON CLEMENTS
SEPTEMBER 9, 2003
BEVERLY HEALTHCARE OF FREDERICKSBURG,
CARRIAGE HILL NURSING HOME,
HERITAGE HALL–FRONT ROYAL,
HERITAGE HALL-KING GEORGE,
LYNN CARE CENTER,
OAK SPRINGS OF WARRENTON,
ROSE HILL NURSING HOME AND
WARRENTON OVERLOOK HEALTH &
REHABILITATION
FROM THE CIRCUIT COURT OF SPOTSYLVANIA COUNTY
William H. Ledbetter, Jr., Judge
Paige S. Fitzgerald, Assistant Attorney
General (Jerry W. Kilgore, Attorney General;
Francis S. Ferguson, Deputy Attorney General;
Siran S. Faulders, Senior Assistant Attorney
General, on briefs), for appellant.
Thomas W. McCandlish (Dominic P. Madigan;
McCandlish Holton, PC, on brief), for
appellees.
This appeal arises from an order of the Circuit Court of
Spotsylvania County (circuit court) reversing the ruling of the
Director of the Department of Medical Assistance Services (DMAS)
that, pursuant to 12 VAC 30-90-20(C), the appellees, eight
nursing home facilities in Virginia that disputed DMAS's
calculation of their Medicaid reimbursement payments, were not
entitled, for the years at issue, to reimbursement for their
Medicaid-related expenses under the higher cost ceiling
applicable to Northern Virginia. In reversing the DMAS
Director's ruling, the circuit court concluded the DMAS
Director's interpretation of 12 VAC 30-90-20(C) was contrary to
the plain meaning of the regulation and was, thus, arbitrary and
capricious. In that same order, the circuit court also affirmed
the DMAS Director's ruling that four of the appellees were time
barred from challenging their Medicaid reimbursement payments for
five of the years at issue and further held that the appellees
were entitled to recover their attorneys' fees and costs subject
to a statutory cap of $25,000 applicable to the appellees as a
group. On appeal, DMAS contends the circuit court erred (1) in
concluding the DMAS Director's interpretation of the relevant
Medicaid regulation was arbitrary and capricious and (2) in
awarding attorneys' fees and costs to the appellees. On
cross-appeal, the appellees contend the circuit court erred (1)
in affirming the DMAS Director's decision that four of the
appellees were time barred from challenging their Medicaid
reimbursement payments for certain years and (2) in ruling the
fees and costs awarded to the appellees were capped at $25,000
for the appellees as a group. In addition, the appellees seek an
award of appellate attorneys' fees. For the reasons that follow,
we affirm the circuit court's judgment that the DMAS Director's
interpretation of 12 VAC 30-90-20(C) was arbitrary and
capricious, that the appellees were entitled to attorneys' fees
and costs, and that certain appellees were time barred from
challenging their reimbursement classifications for certain
years. We reverse the circuit court's judgment that the fees and
costs awarded to the appellees were statutorily capped at $25,000
- 2 -
for the appellees as a group and remand this matter to the
circuit court for determination of the appropriate attorneys'
fees and costs.
I. BACKGROUND
The facts in this case are not in dispute. At all times
relevant to this appeal, the appellees, Beverly Healthcare of
Fredericksburg, f/k/a Fredericksburg Nursing Home, located in
Spotsylvania County; Carriage Hill Nursing Home, located in
Spotsylvania County; Heritage Hall—Front Royal, located in Warren
County; Heritage Hall—King George, located in King George County;
Lynn Care Center, located in Warren County; Oak Springs of
Warrenton, located in Fauquier County; Rose Hill Nursing Home,
located in Clarke County; and Warrenton Overlook Health &
Rehabilitation, f/k/a Warrenton Overlook Care Center, located in
Fauquier County, were nursing home facilities participating in
1
Virginia's Medicaid program. As participants in that program,
1
The times relevant to this appeal vary by appellee, as
follows:
Appellee Fiscal Years Ending
Beverly Healthcare of Fredericksburg 12/31/94
12/31/95
12/31/96
Carriage Hill Nursing Home 6/30/94
6/30/95
6/30/96
6/30/97
Heritage Hall—Front Royal 12/31/94
12/31/95
12/31/96
Heritage Hall—King George 12/31/94
12/31/95
12/31/96
Lynn Care Center 12/31/94
- 3 -
the appellees were entitled to reimbursement by the Commonwealth
for their reasonable and necessary operational and capital costs
incurred in providing nursing care and other medical services to
Medicaid recipients. DMAS is the state agency responsible for
administering Virginia's Medicaid program.
Under the Virginia Medicaid program, each participating
nursing facility must submit an annual cost report to DMAS
detailing the actual costs incurred by the facility for the care
and services provided to Medicaid patients. DMAS then reviews
the nursing facility's cost report and issues a "Notice of
Program Reimbursement" to the facility setting forth the costs
that are to be reimbursed to the facility and the costs that are
disallowed under the Medicaid program and identifying any
adjustments in the reimbursement payment amount to reflect DMAS's
determination that it has underreimbursed or overreimbursed the
facility during the cost year under consideration. If the
nursing facility disagrees with DMAS's reimbursement
determination, the facility may appeal the matter in accordance
with the Administrative Process Act and "the state plan for
medical assistance." Code § 32.1-325.1(B).
12/31/95
12/31/96
Oak Springs of Warrenton 12/31/94
12/31/95
12/31/96
Rose Hill Nursing Home 12/31/94
12/31/95
12/31/96
Warrenton Overlook Health & Rehabilitation 9/30/94
9/30/95
9/30/96
- 4 -
To control costs, DMAS has instituted cost ceiling
limitations, or caps, on the reimbursement of certain costs
incurred by nursing facilities in providing service to Medicaid
patients. A nursing facility will not be reimbursed for costs
that exceed the facility's cap. To ensure that nursing
facilities operating in different economic environments in
Virginia are reimbursed similarly, DMAS has divided the
Commonwealth into three distinct geographic regions or "peer
groups," each with its own cap: (1) "the Virginia portion of the
Washington DC-MD-VA Metropolitan Statistical Area (MSA)," (2) the
"Richmond-Petersburg" MSA, and (3) the "rest of the state." 12
VAC 30-90-20(C). Because the urban area in which they operate is
generally more expensive, nursing facilities in the "Virginia
portion of the Washington DC-MD-VA" MSA (Northern Virginia MSA)
peer group have a higher reimbursement cap than those in the
"rest of the state" peer group.
To determine, for Medicaid reimbursement purposes, whether a
nursing facility is in one of the MSA peer groups or in the "rest
of the state" peer group, DMAS relies on the list of urban-area
jurisdictions published in a final rule by the Health Care
Financing Administration (HCFA), the federal agency within the
United States Department of Health and Human Services that
administers the Medicare program. See id. Generally, a facility
located in a city or county included on HCFA's list of
constituent jurisdictions of the Northern Virginia urban area or
the Richmond-Petersburg urban area is considered a member of that
respective area's corresponding MSA peer group. See id.
Conversely, a facility located in a jurisdiction not included on
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HCFA's list of jurisdictions in either the Northern Virginia or
Richmond-Petersburg urban area is considered a member of the
"rest of the state" peer group. See id.
In compiling and revising its list of urban areas, HCFA
relies, in turn, on the latest list of MSAs published by the
federal Office of Management and Budget (OMB). Applying
decennial census data and federal Census Bureau population
estimates to various standards, OMB designates certain geographic
areas of the country as MSAs. The boundaries of each MSA reflect
OMB's judgment that, for statistical purposes, the jurisdictions
2
located within those boundaries constitute metropolitan areas.
OMB periodically revises its MSA designations to reflect changing
populations and economic conditions, adding new jurisdictions
that, based on the most current data and standards, qualify as
metropolitan areas or removing jurisdictions that no longer
qualify. When HCFA updates Medicare payment rates, it adopts
OMB's latest revised MSA designations, which remain in effect
until new MSA designations are adopted by HCFA and published in a
final rule.
2
As OMB explains,
OMB establishes and maintains the
definitions of the [metropolitan areas]
solely for statistical purposes. In
periodically reviewing and revising the
[metropolitan areas], OMB does not take into
account or attempt to anticipate any
nonstatistical uses that may be made of the
definitions, nor will OMB modify the
definitions to meet the requirements of any
nonstatistical program.
OMB Bulletin No. 95-04 1 (June 30, 1995).
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On June 30, 1993, OMB published an updated list of MSA
designations based on data from the 1990 census. As reflected in
that list, the Northern Virginia MSA had been expanded to include
the jurisdictions in which each of the appellees was located.
On September 1, 1993, HCFA published a final rule adopting
OMB's June 30, 1993 revised MSA designations for purposes of
- 7 -
Medicare3 reimbursement payments to hospitals, effective October
1, 1993. See Rules and Regulations, 58 Fed. Reg. 46270(September 1, 1993). HCFA explained its adoption of OMB's new
MSA designations for purposes of hospital reimbursement as
follows:
Under the Medicare prospective payment
system, different payment rates are
calculated for hospitals located in rural,
urban, and large urban areas. For purposes
of the standardized payment amount, section
1886(d)(2)(D) of the Social Security Act
requires that we use Metropolitan Statistical
Areas (MSAs) as defined by the office of
Management and Budget (OMB) to determine
whether hospitals are located in rural, urban
or large urban areas.
* * * * * * *
. . . OMB announced changes [in the MSA
designations] and we have adopted those
changes in this final rule. Table 4a of the
wage index tables in the addendum to this
final rule lists the MSAs and their member
counties as set forth in OMB's announcement.
Id. at 46291-92. As reflected in Table 4a of HCFA's final rule,
the Northern Virginia urban area had been expanded to include the
jurisdictions in which each of the appellees was located:
Spotsylvania County, Warren County, King George County, Fauquier
County, and Clarke County. Id. at 46386.
On January 6, 1994, HCFA published a final notice advising
that, because the Omnibus Budget Reconciliation Act of 1993,
enacted by Congress on August 10, 1993, required that there be no
3
Medicare is a separate and distinct program from Medicaid.
Medicaid is a state-run welfare program, providing medical
assistance primarily to indigent persons. In contrast, Medicare
is a medical insurance program for the elderly, irrespective of
income, that is administered by the federal government.
Although some of the regulations of the two programs overlap,
- 8 -
increases in Medicare cost limits for nursing facilities until
October 1, 1995, the revised MSA designations established by OMB
on June 30, 1993, would not be adopted for purposes of Medicare
reimbursements for nursing facilities until at least October 1,
1995. See Notices, 59 Fed. Reg. 762-64 (January 6, 1994). On
October 1, 1997, HCFA published a final notice providing for the
implementation of the revised MSA designations, including the
added Northern Virginia jurisdictions, for purposes of Medicare
reimbursements for nursing facilities, effective that date. See
Notices 62 Fed. Reg. 51536-38, 51548 (October 1, 1997).
Concluding HCFA's adoption on September 1, 1993, of OMB's
June 30, 1993 revised MSA designations, for purposes of Medicare
reimbursement for hospitals but not for nursing facilities, did
not require the implementation of the new MSA designations for
purposes of Medicaid reimbursement for Virginia nursing
facilities, DMAS did not include the jurisdictions in which the
appellees were located in the Northern Virginia MSA until October
1, 1997, when HCFA specifically adopted the new MSA designations
for the purpose of Medicare reimbursement for nursing facilities.
Accordingly, prior to October 1, 1997, DMAS calculated the
Medicaid reimbursements for the appellees using a reimbursement
cap applicable to the "rest of the state" peer group, rather than
the higher cap applicable to the Northern Virginia MSA peer
group.
On September 26, 1996, the appellees wrote to the Director
of DMAS requesting that he issue a case decision implementing the
June 30, 1993 revised MSA designations effective October 1, 1993.
Medicaid has its own set of rules.
- 9 -
By letter dated October 4, 1996, the DMAS Director declined to
consider the merits of the appellees' dispute and advised the
appellees that DMAS's decisions regarding reimbursement were
appealable in accordance with the Administrative Process Act. By
letter dated October 11, 1996, the appellees notified the
Director of DMAS that they were appealing DMAS's failure to
include the appellees in the Northern Virginia MSA peer group for
the prior fiscal years commencing in 1994. Counsel for the
appellees further noted in that letter, as follows:
I write in response to your October 4
letter which declines to issue a case
decision addressing the DMAS position on the
Northern Virginia Peer Group issue. Instead
your letter indicates that this issue should
be addressed through the DMAS audit and
appeal process. You take this position
despite the fact that "[the] organization of
participating facilities into peer groups
according to location as a proxy for cost
variation across state facilities with
similar operating characteristics" is
specifically identified in the DMAS appeal
regulations as a non-appealable issue. See
Nursing Home Payment System § 3.1.B.2.
We do not believe that your position on
this matter is reconcilable with this
regulation, but to move this matter forward,
the above facilities are submitting this
appeal notice with a reservation of all right
to contest your determination. . . .
* * * * * * *
Given your October 4, 1996 letter, we
trust that DMAS will accept this notice and
promptly schedule appeal hearings on the
above facilities and cost years despite the
fact that the DMAS appeal regulations
themselves state that issues related to peer
group designation are not appealable through
the normal audit and appeal process.
In response to appellees' notice of appeal, an informal
fact-finding conference was conducted on November 7, 1997, and a
- 10 -
decision in DMAS's favor was issued on May 1, 1998. The
appellees appealed that decision, and a formal hearing was held
on October 26, 1999. The hearing officer issued a recommendation
on November 10, 2000, in favor of the appellees. The DMAS
Director rendered a final case decision on April 27, 2001,
rejecting the hearing officer's recommendation. The Director
ruled (1) that, because HCFA did not implement the new MSA
designations for purposes of nursing facility reimbursement until
October 1, 1997, DMAS had correctly classified the appellees as
being in the "rest of the state" peer group between September 1,
1993, and October 1, 1997, and (2) that four of the appellees
were time barred from appealing their peer group classification
for five of the fiscal years at issue because their appeal
requests were not filed within ninety business days of receipt of
the Notice of Program Reimbursement (NPR) for those years, as
required by 12 VAC 30-90-131, as follows:
Facility Fiscal Year Ending NPR Appeal
Beverly Healthcare 12/31/94 12/19/95 10/11/96
Rose Hill Nursing Home 12/31/94 12/19/95 10/11/96
Oak Springs 12/31/94 2/1/96 10/11/96
Warrenton Overlook 9/30/94 8/7/95 10/11/96 4
9/30/95 9/30/95 10/11/96.
Each of the eight appellees filed a separate notice of
appeal with DMAS, indicating its intention to appeal the DMAS
Director's case decision to the circuit court.5 Noting their
4
The appellees do not dispute these factual findings by the
DMAS Director.
5
Beverly Healthcare of Fredericksburg, which is located in
Spotsylvania County, filed its notice of appeal with DMAS on May
29, 2001. The other seven appellees filed their notices of
appeal on May 30, 1991.
- 11 -
compliance with Rules 2A:3(b) and 2A:4(a),6 the appellees filed a
joint petition for appeal with the circuit court on June 26,
2001. The appellees also subsequently filed a joint request for
an award of their attorneys' fees and costs incurred in
connection with the judicial appeal, in the amount of $62,291.92
(approximately $7,786 for each appellee).7
After conducting several hearings on the matter, the circuit
court ruled in its final order of March 5, 2002, that (1) the
DMAS Director's decision that, for purposes of Medicaid
reimbursement for the years relevant to this appeal, the
appellees were not members of the Northern Virginia MSA peer
group was contrary to the plain meaning of 12 VAC 30-90-20(C)
and, thus, arbitrary and capricious; (2) the DMAS Director's
decision that four of the appellees were time barred from
appealing their peer group classification for five of the fiscal
6
Rule 2A:3(b) provides, in pertinent part, as follows:
In the event of multiple appeals in the
same proceeding, only one record need be
prepared and it shall be transmitted to the
clerk of the court named in the first notice
of appeal filed. If there are multiple
appeals to different courts from the same
regulation or case decision, all such
appeals shall be transferred to and heard by
the court having jurisdiction that is named
in the notice of appeal that is the first to
be filed.
Rule 2A:4(a) provides, in pertinent part, that, "[w]ithin
30 days after the filing of the notice of appeal, the appellant
shall file his petition for appeal with the clerk of the circuit
court named in the first notice of appeal to be filed."
7
Throughout the proceedings in this case, both before DMAS
and the circuit court, the appellees were represented by the
- 12 -
years at issue was correct; and (3) the appellees were entitled
by law to an award of attorneys' fees and costs, in an amount
statutorily capped at $25,000 for the appellees as a group
($3,125 for each appellee), because "the instant case constitutes
a single case for purposes of the $25,000 limit on the award of
fees pursuant to . . . Code § 2.2-4030."
This appeal and cross-appeal followed.
same counsel and law firm representing them in this appeal.
- 13 -
II. DMAS'S APPLICATION OF MEDICAID REGULATIONS
A. Standard of Review
Here, we are asked to review DMAS's interpretation and
application of its own regulations governing Medicaid principles
of reimbursement.
In reviewing decisions by DMAS, an
appellate court accords great deference to
. . . the agency's . . . interpretation of
the laws applicable to "the reimbursement due
qualified providers for their reasonable
costs incurred while delivering health care
services." This Court will overturn DMAS'[s]
"interpretations of the statutes and
regulations governing Medicaid . . .
principles of reimbursement . . . only . . .
when found to be arbitrary and capricious."
Beverly Health and Rehab. Servs., Inc. v. Metcalf, 24 Va. App.
584, 592, 484 S.E.2d 156, 160 (1997) (quoting Fralin v.
Kozlowski, 18 Va. App. 697, 701, 447 S.E.2d 238, 241 (1994)).
Additionally, we are required, "in reviewing an agency decision,
. . . to consider . . . the purposes of the basic law under which
the agency acted." Johnston-Willis, Ltd. v. Kenley, 6 Va. App.
231, 246, 369 S.E.2d 1, 9 (1988).
B. 12 VAC 30-90-20(C)
DMAS contends the circuit court erred in ruling that the
DMAS Director's decision that, for the years relevant to this
appeal, the appellees were in the "rest of the state" peer group,
rather than the Northern Virginia MSA peer group, was arbitrary
and capricious. In reaching that decision, DMAS maintains, the
circuit court improperly substituted its own independent judgment
for that of DMAS, the agency charged with administering
Virginia's Medicaid program. DMAS argues that, pursuant to 12
VAC 30-90-20(C), DMAS must look "to the actions" of HCFA in
- 14 -
placing a nursing facility in a particular peer group. "When,
for purposes of reimbursement, HCFA determines that a nursing
facility should be reimbursed based on its placement in a
particular MSA, then DMAS must follow HCFA's actions," DMAS
asserts. DMAS further asserts that HCFA published a list
incorporating the new MSA designations, including the updated
Northern Virginia MSA, on September 1, 1993; however, that
updated list of MSA designations was "only meant for hospital
reimbursement purposes." HCFA did not adopt and implement the
updated Northern Virginia MSA for purposes of nursing facility
reimbursement, DMAS argues, until October 1, 1997. Consequently,
DMAS's argument continues, the jurisdictions in which the
appellees were located were not added to the Northern Virginia
MSA for purposes of Medicaid reimbursement of nursing facilities
until October 1, 1997. Accordingly, DMAS concludes, the DMAS
Director's determination that the appellees were not members of
the Northern Virginia MSA peer group from September 1, 1993, to
October 1, 1997, was proper and, thus, not arbitrary and
capricious.
The appellees argue that the DMAS Director, in deciding the
appellees were not members of the Northern Virginia MSA peer
group until October 1, 1997, and, thus, were not entitled to
reimbursement for their Medicaid-related expenses under the
higher cost ceiling applicable to that peer group, disregarded
and misapplied the plain language of 12 VAC 30-90-20(C). Hence,
the appellees contend, the circuit court correctly concluded that
the DMAS Director's decision was arbitrary and capricious and
properly reversed that decision.
- 15 -
The issue before us, then, is whether the circuit court
erred in holding that the DMAS Director's decision that, for
purposes of Medicaid reimbursement, the appellees were members of
the "rest of the state" peer group from September 1, 1993, to
October 1, 1997, rather than the Northern Virginia MSA peer
group, was arbitrary and capricious. The resolution of that
issue turns on whether the DMAS Director correctly interpreted
the plain language of the relevant regulation, 12 VAC
30-90-20(C). See, e.g., Smith v. Liberty Nursing Home, Inc., 31
Va. App. 281, 296-97, 522 S.E.2d 890, 897 (2000) (holding that,
because the DMAS Director "disregarded the plain language" of the
controlling regulation, "he arbitrarily and capriciously
interpreted the regulation"). We hold he did not.
Regulation 12 VAC 30-90-20(C) provides, in pertinent part,
as follows:
[I]n determining the ceiling limitation,
there shall be . . . patient care medians
established for nursing facilities in the
[Northern Virginia MSA], the
Richmond-Petersburg [MSA], and in the rest of
the state. . . . The [Northern Virginia] MSA
and the Richmond-Petersburg MSA shall include
those cities and counties as listed and
changed from time to time by the Health Care
Financing Administration (HCFA). A nursing
facility located in a jurisdiction which HCFA
adds to or removes from the [Northern
Virginia] MSA or the Richmond-Petersburg MSA
shall be placed in its new peer group, for
purposes of reimbursement, at the beginning
of its next fiscal year following the
effective date of HCFA's final rule.
(Emphasis added.)
As relevant to the instant case, the plain language of the
regulation establishes a clear and direct mandate: When HCFA,
the federal Medicare agency, indicates in a final rule that it
- 16 -
has added a jurisdiction to either the Northern Virginia MSA or
the Richmond-Petersburg MSA, DMAS, the state Medicaid agency,
must add, for Medicaid reimbursement purposes, each participating
nursing facility located in that jurisdiction to the
corresponding MSA peer group "at the beginning of [the
facility's] next fiscal year following the effective date of
HCFA's final rule." 12 VAC 30-90-20(C). Nothing in the plain
language of the regulation suggests, as DMAS argues, that DMAS's
addition of a facility to an MSA peer group is limited strictly
to when HCFA implements revised MSA designations specifically for
purposes of Medicare reimbursement of nursing facilities, rather
than of other medical facilities. Indeed, the plain language of
the regulation clearly indicates that DMAS's inclusion of a
facility in a MSA peer group does not depend on any action by
HCFA other than HCFA's mere inclusion of the jurisdiction in
which the facility is located on its list in a final rule of the
revised MSA designations it has adopted. In formulating its
regulations, DMAS could have provided that nursing facilities
were to be added to peer groups only when HCFA specifically
implemented revised MSA designations for purposes of reimbursing
8
nursing facilities, but it did not. DMAS is bound by the plain
language of its own regulation.
8
DMAS acknowledges, on appeal, that the DMAS Director's
interpretation of 12 VAC 30-90-20(C) results in the following
reading of the regulation:
A nursing facility located in a
jurisdiction which HCFA adds to or removes
from the [Northern Virginia] MSA or the
Richmond-Petersburg MSA shall be placed in
its new peer group, for purposes of
- 17 -
Here, on September 1, 1993, HCFA published a final rule
updating Medicare reimbursement payments to hospitals, effective
October 1, 1993. In that final rule, HCFA specifically adopted
OMB's latest revised MSA designations, which expanded the
Northern Virginia MSA to include the jurisdictions in which each
of the appellees was located. HCFA also specifically included
each of those jurisdictions in its list in the final rule of the
MSAs it was adopting. Hence, in accordance with the plain
language of 12 VAC 30-90-20(C), DMAS was required to place the
appellees in the Northern Virginia MSA peer group and reimburse
them using the higher cap applicable to that peer group "at the
beginning of [each facility's respective] next fiscal year
following" October 1, 1993. Id. In failing to do so for the
years relevant to this appeal, DMAS did not comply with the clear
and direct mandate of its own regulation.
This resolution of the issue is buttressed by our
consideration of the underlying purpose of 12 VAC 30-90-20(C).
The regulation was promulgated to establish higher reimbursement
caps for nursing facilities located in metropolitan areas and,
thus, avoid the effect, inherent in a reimbursement system with a
single uniform cap, of penalizing facilities in urban areas
simply because they operate in jurisdictions where costs are
generally higher than those in which their rural counterparts
operate. On June 30, 1993, OMB announced revised MSA
designations indicating that, based on data from the 1990 census,
reimbursement, at the beginning of its next
fiscal year following the effective date of
HCFA's final rule [changing MSA designations
for nursing facilities].
- 18 -
the jurisdictions in which each of the appellees was located
shared the same statistical characteristics as the other urban
areas in the Northern Virginia MSA and, thus, were to be included
in that MSA. On September 1, 1993, HCFA adopted those revised
MSA designations in a final rule. Irrespective of whether HCFA's
final rule governed Medicare reimbursement of hospitals or
nursing facilities, the jurisdictions in which the appellees were
operating were recognized by HCFA as being urban in nature.
Accordingly, in terms of realizing the regulation's underlying
purpose, it is irrelevant whether HCFA recognized a change in the
Northern Virginia MSA in a nursing facility or hospital rule.
The recognition, itself, is what matters.
We hold, therefore, that the DMAS Director's decision that,
for purposes of Medicaid reimbursement, the appellees were
members of the "rest of the state" peer group from September 1,
1993, to October 1, 1997, rather than the Northern Virginia MSA
peer group, was contrary to the plain meaning of 12 VAC
30-90-20(C). Accordingly, we affirm the circuit court's judgment
that the DMAS Director's decision was arbitrary and capricious.
C. 12 VAC 30-90-131
The appellees contend the circuit court erred in affirming
9
the DMAS Director's decision that, pursuant to 12 VAC 30-90-131,
four of the appellees were time barred from challenging their
Medicaid reimbursement payments for five fiscal years, as
follows:
9
Regulation 12 VAC 30-90-131 has subsequently been
repealed. The provisions governing appeals by nursing
facilities of DMAS's adjustments to cost reports are currently
- 19 -
Appellees Fiscal Year Ending
Beverly Healthcare 12/31/94
Rose Hill Nursing Home 12/31/94
Oak Springs 12/31/94
Warrenton Overlook 9/30/94
9/30/95.
The appellees argue that the DMAS Director's interpretation and
application of 12 VAC 30-90-131 is arbitrary and capricious. We
disagree.
In pertinent part, 12 VAC 30-90-131 provided:
An appeal shall not be heard until the
following conditions are met:
* * * * * * *
3. All first level appeal requests shall be
filed in writing with the DMAS within 90
business days following the date of a DMAS
notice of program reimbursement that
adjustments have been made to a specific cost
report.
Thus, as the DMAS Director noted in his final case decision, a
nursing facility "desiring to challenge a [reimbursement] payment
decision made by DMAS must file a written notice of appeal within
90 days of receiving the Notice of . . . Program Reimbursement
. . . that triggers the payment dispute."
It is undisputed that the Notices of Program Reimbursement
received by the four appellees listed in the table above for the
five fiscal years listed reflected Medicaid reimbursement
payments in accordance with the caps applicable to the "rest of
state" peer group rather than the Northern Virginia MSA peer
group. It is further unchallenged that, although they disputed
DMAS's failure to adjust their cost reports in the Notices of
set forth in 12 VAC 30-20-540.
- 20 -
Program Reimbursement to reflect their inclusion in the Northern
Virginia MSA peer group, the four appellees did not file notices
- 21 -
of appeal within ninety business days of receipt of the Notice of
Program Reimbursement for the five years at issue. Accordingly,
as the circuit court held, the appeals for those four appellees
for the fiscal years listed are time barred under 12 VAC
30-90-131.
While not disputing that the regulation operates as a
statute of limitations for appeals, the appellees maintain that
DMAS's own actions rendered the filing deadline in 12 VAC
30-90-131 inapplicable in this case. The appellees argue (1)
10
that 12 VAC 30-90-130(B)(2) prohibited them from challenging
DMAS's failure to place them in the Northern Virginia MSA peer
group because it declared the issue "nonappealable"; (2) that, in
advising the appellees in his letter of October 4, 1996, to use
DMAS's administrative appeals process to raise their concern, the
DMAS Director effectively waived 12 VAC 30-90-131's ninety-day
filing deadline; and (3) that, in "holding such an appeal" for
all the appellees and for all fiscal years, DMAS effectively
sanctioned the timing of the appeal as to all appellees and all
years at issue. The appellees' arguments are without merit.
Regulation 12 VAC 30-90-130(B)(2) provided that nursing
facilities "have the right to appeal . . . DMAS'[s]
interpretation and application of state . . . Medicaid . . .
principles of reimbursement in accordance with the Administrative
Process Act." The regulation also provided that "[t]he
organization of participating [nursing facilities] into peer
groups according to location as a proxy for cost variation across
10
Regulation 12 VAC 30-90-130 has subsequently been
repealed.
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state facilities with similar operating characteristics" is a
nonappealable issue. Reading these two provisions together, the
DMAS Director held that, while 12 VAC 30-90-130(B)(2) prohibits a
nursing facility from appealing DMAS's "authority granted by
regulation to use MSA grouping as a mechanism in the rate-setting
process," it does not bar a nursing facility from challenging the
correctness of its peer group assignment at the time the Notice
of Program Reimbursement is received. The DMAS Director's
interpretation of 12 VAC 30-90-130(B)(2) is reasonable. The
principles of reimbursement are not subject to appeal under 12
VAC 30-90-130(B)(2), but the interpretation and application of
those principles clearly are. The issue in this case is not
whether DMAS had the authority to organize nursing facilities
into peer groups—a principle of reimbursement—but whether DMAS
properly applied 12 VAC 30-90-20(C) when it assigned the
appellees to the "rest of state" peer group for the years
relevant to this appeal even though they were located in
jurisdictions added to the Northern Virginia MSA by HCFA—an
interpretation and application of a principle of reimbursement.
Accordingly, 12 VAC 30-90-130(B)(2) did not prohibit the
appellees from appealing DMAS's failure to place them in the
Northern Virginia MSA peer group.
Likewise, the appellees' reliance on the DMAS Director's
letter of October 4, 1996, is misplaced. In issuing that letter,
the DMAS Director was responding to the appellees' September 26,
1996 letter requesting that he issue a case decision implementing
the updated MSA designations recognized by HCFA, effective
October 1, 1993. In his response, the DMAS Director neither
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passed judgment on the timeliness of the appellees' request under
12 VAC 30-90-131 nor extended the time for filing an appeal. He
merely declined to consider the merits of the appellees' dispute
and advised the appellees that DMAS's decisions regarding
reimbursement were appealable in accordance with the
Administrative Process Act. Accordingly, the appellees' reliance
on the Director's letter as a waiver of the filing deadlines was
at their own peril.
Furthermore, the fact that DMAS conducted an informal
fact-finding conference in response to appellees' notice of
appeal in no way obviates the requirement that the appellees
timely file their appeal requests with DMAS in accordance with 12
VAC 30-90-131. Similarly, the fact that all of the appellees'
appeals were addressed at the informal fact-finding conference
does not bar DMAS from subsequently determining the timeliness of
the appeals. See Westminster-Canterbury of Hampton Rds., Inc. v.
Virginia Beach, 238 Va. 493, 503, 385 S.E.2d 561, 566 (1989)
(holding that the doctrine of estoppel does not apply to the
Commonwealth "when acting in a governmental capacity").
The appellees also maintain that the time limits imposed by
12 VAC 30-90-131 do not apply in this case because a cost report
"adjustment" has not yet occurred. The regulation's ninety-day
filing deadline is triggered, appellees assert, only upon receipt
by a nursing facility of notice by DMAS that "adjustments" were
made to the facility's cost report. In this instance, the
appellees argue,
no adjustment has been made to the
[appellees'] cost reports denying their
inclusion in the Northern Virginia Peer
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Group. Since there has been no adjustment
made to the cost reports for the years under
appeal pertaining to the issue under appeal,
the 90-day post-adjustment period
contemplated by 12 VAC 30-90-131 has not been
triggered.
We find the appellees' reading of 12 VAC 30-90-131 too
restrictive. We believe that, as used in 12 VAC 30-90-131, the
term "adjustments" not only contemplates changes made by DMAS to
a nursing facility's cost report but also DMAS's failure to make
required changes to a facility's cost report in the Notice of
Program Reimbursement. For example, if DMAS underreimbursed a
nursing facility during the fiscal year, it would be absurd to
suggest that DMAS's failure to make any adjustment in the Notice
of Program Reimbursement to correct that underpayment would not
trigger the time limit under 12 VAC 30-90-131 while DMAS's
inclusion of the wrong adjustment amount in the Notice of Program
Reimbursement would. Both are improper "adjustments" under 12
VAC 30-90-131 and both would trigger the regulation's filing
deadline.
Here, the appellees disputed DMAS's failure to adjust their
cost reports to reflect their inclusion in the Northern Virginia
MSA peer group in accordance with HCFA's recognition that the
jurisdictions in which they were located were a part of the
Northern Virginia MSA. Hence, the appellees' receipt of the
Notices of Program Reimbursement in which DMAS failed to make the
disputed peer-group adjustment to their cost reports triggered
the filing deadline set forth in 12 VAC 30-90-131.
For these reasons, we affirm the circuit court's judgment
that the DMAS Director correctly determined that, pursuant to 12
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VAC 30-90-131, four of the appellees were time barred from
challenging their Medicaid reimbursement payments for five of the
fiscal years at issue, as noted above.
III. ATTORNEYS' FEES AND COSTS
A. Standard of Review
Here, we are asked to review the circuit court's
interpretation and application of Code § 2.2-4030. Accordingly,
we review the circuit court's judgment de novo. See Sink v.
Commonwealth, 28 Va. App. 655, 658, 507 S.E.2d 670, 671 (1998)
(noting that, "[a]lthough the trial court's findings of
historical fact are binding on appeal unless plainly wrong, we
review the trial court's statutory interpretations and legal
conclusions de novo").
B. Appellees' Entitlement to Fees and Costs
DMAS contends the circuit court erred in awarding attorneys'
fees and costs to the appellees. Specifically, DMAS argues the
circuit court erred in rejecting DMAS's argument that its
position was "substantially justified." We disagree.
The Administrative Process Act generally requires that,
absent special circumstances, a party bringing a civil case under
the Act who is successful on the merits in challenging
unjustified agency action be awarded attorneys' fees and costs:
In any civil case brought under Article 5
(§ 2.2-4025 et seq.) of this chapter or
§§ 2.2-4002, 2.2-4006, 2.2-4011, or
§ 2.2-4018, in which any person contests any
agency action, such person shall be entitled
to recover from that agency . . . reasonable
costs and attorneys' fees if such person
substantially prevails on the merits of the
case and the agency's position is not
substantially justified, unless special
circumstances would make an award unjust.
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The award of attorneys' fees shall not exceed
$25,000.
Code § 2.2-4030(A) (formerly Code § 9-6.14:21(A)). Thus, the
appellees are entitled to recover their reasonable costs and fees
if (1) they substantially prevailed on the merits of the case,
(2) the agency's position is not substantially justified, and (3)
there are no special circumstances that would make an award
unjust. We conclude, as did the circuit court, that all three
conditions are satisfied in this matter for each of the
appellees.
Firstly, we have previously determined that the appellees
substantially prevailed on the merits of the case. Secondly, we
have also previously determined that the DMAS Director's ruling
that the appellees were not members of the Northern Virginia MSA
peer group for the years relevant to this appeal was contrary to
the plain meaning of the applicable regulation and, thus,
arbitrary and capricious. Having determined that DMAS
misinterpreted and misapplied the plain meaning of the relevant
regulation, we cannot say, as a matter of law, that DMAS's
position in this case was "substantially justified." DMAS offers
no authority that persuades us otherwise. Thirdly, as the
circuit court found, there are no special circumstances that
would render an award of fees and costs unjust.
Accordingly, the circuit court did not err in ruling the
appellees were entitled to recovery of their attorneys' fees and
costs for the proceedings in the circuit court, and we affirm
that ruling.
C. Limit on Fees and Costs
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The appellees contend the circuit court erred in ruling the
attorneys' fees and costs awarded to the appellees were capped at
$25,000 for the appellees as a group. Specifically, the
appellees argue the circuit court (1) failed to recognize that
the $25,000 statutory cap is a limit on attorneys' fees only and
(2) improperly applied the $25,000 statutory cap on attorneys'
fees to the appellees as a group, rather than individually. We
agree with both of the appellees' arguments.
1. Costs
It is well established that,
[w]hile in the construction of statutes the
constant endeavor of the courts is to
ascertain and give effect to the intention of
the legislature, that intention must be
gathered from the words used, unless a
literal construction would involve a manifest
absurdity. Where the legislature has used
words of a plain and definite import the
courts cannot put upon them a construction
which amounts to holding the legislature did
not mean what it has actually expressed.
Floyd, Trustee v. Harding & als., 69 Va. (28 Gratt.) 401, 405
(1877).
By its own terms, Code § 2.2-4030(A) plainly distinguishes
between "attorneys' fees" and "costs." The first sentence of the
statute provides that a qualified party "shall be entitled to
recover . . . reasonable costs and attorneys' fees." Code
§ 2.2-4030(A) (emphasis added). The next sentence of the statute
provides that the "award of attorneys' fees shall not exceed
$25,000." Id. (emphasis added). Absent from the statute is any
language limiting the recovery of costs. Accordingly, the
$25,000 cap applies only to attorneys' fees and the circuit court
erred in also applying the cap in its final order of March 5,
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2002, to the appellees' costs. See City of Hopewell v. County of
Prince George, 239 Va. 287, 294, 389 S.E.2d 685, 689 (1990)
(observing that, "[w]hen the legislature uses two different terms
in the same act, it is presumed to mean two different things").
2. Attorneys' Fees
Following the issuance of the DMAS Director's final case
decision on April 27, 2001, each of the eight appellees timely
filed a separate notice of appeal with DMAS, indicating its
intention to appeal the Director's decision to the circuit court.
Noting their compliance with Rules 2A:3(b) and 2A:4(a), the
appellees then timely filed a joint petition for appeal with the
circuit court.
In support of their contention that the circuit court
misapplied the $25,000 limit on attorneys' fees to them as a
group, the appellees submit that, because each individual
appellee independently filed its own notice of appeal with DMAS,
the proceeding in the circuit court involved eight separate
appeals, which were then consolidated into a single proceeding in
compliance with Rules 2A:3(b) and 2A:4(a). Thus, the appellees
argue, each appellee effectively brought its own separate civil
case under the Administrative Process Act. Accordingly, the
appellees conclude, Code § 2.2-4030(A)'s $25,000 limit on the
recovery of attorneys' fees should apply separately to each
appellee.
DMAS argues to the contrary that, because there was
literally only one case before the circuit court, "with one
central issue common to each party," and only one agency case
decision from which the appellees appealed, the circuit court
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correctly decided that "the instant case constitutes a single
civil case" under Code § 2.2-4030(A) and properly limited the
appellees' overall award of attorneys' fees to $25,000. Adoption
of the appellees' interpretation of Code § 2.2-4030(A), DMAS
argues, would violate the plain language of the statute and lead
to absurd results if, for example, there were a hundred nursing
facilities involved in a case like this.
The issue before us, then, is whether, for purposes of Code
§ 2.2-4030(A)'s $25,000 limit on the award of attorneys' fees,
the appellees' appeals to the circuit court of the DMAS
Director's case decision constitute a single case or eight
separate cases in the circuit court. Settled principles of
statutory construction guide us in the resolution of this issue.
In interpreting a statute, we "assume that 'the legislature
chose, with care, the words it used when it enacted the relevant
statute, and we are bound by those words as we interpret the
statute.'" City of Virginia Beach v. ESG Enters., Inc., 243 Va.
149, 153, 413 S.E.2d 642, 644 (1992) (quoting Barr v. Town and
Country Props., 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990)).
Additionally,
we examine [the] statute in its entirety,
rather than by isolating particular words or
phrases. When the language in a statute is
clear and unambiguous, we are bound by the
plain meaning of that language. We must
determine the General Assembly's intent from
the words appearing in the statute, unless a
literal construction of the statute would
yield an absurd result.
Cummings v. Fulghum, 261 Va. 73, 77, 540 S.E.2d 494, 496 (2001)
(citations omitted). "However, when statutory construction is
required, we construe a statute to promote the end for which it
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was enacted, if such an interpretation can reasonably be made
from the language used." Mayhew v. Commonwealth, 20 Va. App.
484, 489, 458 S.E.2d 305, 307 (1995). "Thus, a statute should be
read to give reasonable effect to the words used 'and to promote
the ability of the enactment to remedy the mischief at which it
is directed.'" Id. (quoting Jones v. Conwell, 227 Va. 176, 181,
314 S.E.2d 61, 64 (1984)). "Generally, the words and phrases
used in a statute should be given their ordinary and usually
accepted meaning unless a different intention is fairly
manifest." Woolfolk v. Commonwealth, 18 Va. App. 840, 847, 447
S.E.2d 530, 534 (1994).
Applying these principles to the language of Code
§ 2.2-4030(A) relevant to this issue, we conclude, mindful of the
legislative goal promoted by the statute, that the construction
urged by the appellees is the proper interpretation of the
statute. The "mischief" at which Code § 2.2-4030(A) is directed
is the unjustified action of an agency. The statute clearly
expresses the legislature's intent to allow a party that
successfully challenges the agency's action to recover its
attorneys' fees, up to $25,000. In permitting "any person" in
"any civil case" to recover fees up to the stated limit, we
believe the legislature intended in a case like this, where each
appellee independently filed with DMAS its own notice of appeal,
which was then consolidated with the other appellees' appeals in
accordance with the Rules of the Supreme Court into a single
proceeding in the circuit court, that each of the notices of
appeal independently filed by the appellees represented the
commencement of a separate civil case. Each case, although
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related to the other appellees' cases, presented its own issues
with regard to the jurisdiction and fiscal years involved and the
timeliness of the filings in that case. The consolidation of
those cases, while it combined the cases for purposes of review
by the circuit court, did not alter the nature of the individual
cases brought by the appellees.
We conclude, therefore, that Code § 2.2-4030(A)'s $25,000
limit on the recovery of attorneys' fees applies separately to
each appellee, rather than to the appellees as a group.
Accordingly, we reverse the circuit court's judgment and remand
this matter to the circuit court for determination and award of
the appropriate attorneys' fees and costs due the appellees for
services rendered on their behalf in the circuit court, as well
as for this appeal.
IV. CONCLUSION
In summary, we affirm the circuit court's judgment that the
DMAS Director's interpretation of 12 VAC 30-90-20(C) was
arbitrary and capricious, that the appellees were entitled to
attorneys' fees and costs, and that four of the appellees were
time barred from challenging their peer group reimbursement
classifications for five of the fiscal years relevant to this
appeal. We also reverse the circuit court's judgment that the
fees and costs awarded to the appellees were statutorily capped
at $25,000 for the appellees as a group and remand this case to
the circuit court for further proceedings consistent with this
opinion.
Affirmed in part,
reversed in part,
and remanded.
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