Fort Washington Care Center Ltd. Partnership v. Department of Health & Mental Hygiene

BLOOM, Judge. Appellant, Fort Washington Care Center Limited Partnership, doing business as Fort Washington Rehabilitation Center (Fort Washington), provides nursing home care to indigents under Maryland’s Medical and Pharmacy Assistance Program, Md. Health-General Code Ann., Title 15, subtitle l, 1 which, in turn, is partially financed under the Federal Medicaid Program. See 42 U.S.C. § 1396 et seq. In order to be reimbursed for care it provided for indigent patients under that program for fiscal years 1983 and 1984, appellant submitted medical cost reports to appellee, the Department of Health and Mental Hygiene of Maryland (the Department).

The Department’s designee, a private accounting firm (auditor), conducted routine field verifications in reviewing Fort Washington’s reports and submitted adjustment reports for each of the two years. Challenging the adjustments made by the auditor, Fort Washington appealed to the Department’s Nursing Home Appeal Board. The appeal board upheld the auditor, and Fort Washington appealed that decision to the Circuit Court for Prince George’s County. The court, in turn, affirmed the appeal board, and from the circuit court’s judgment, Fort Washington noted a timely appeal to this Court.

Appellant operates a duly licensed 150 bed comprehensive and intermediate care nursing home facility (see COMAR 10.09.02 and .11) in Prince George’s County, Maryland. The matter in dispute concerns the intermediate care services only. The facility was constructed in 1983 with financing guaranteed by a federal program under the United States Department of Housing & Urban Development (HUD). This appeal involves the mortgage interest and the acquisition costs of that HUD mortgage. ²⁰⁸ When the Department, on the basis of the auditor’s report, made certain “cost report adjustments” reducing the amount of reimbursement claimed by Fort Washington for the interest and associated financing costs of its HUD mortgage for each of the two years in question, a separate appeal to the Nursing Home Appeal Board was taken by Fort Washington, pursuant to § 15-108, for each fiscal year.

Appellant contested several items, including mortgage costs, in the Department’s adjustment reports. After the appeal board sustained the cost adjustments made by the Department, Fort Washington appealed each decision and, on its motion, the appeals were consolidated, placing the common issue of the board’s ruling concerning appellant’s mortgage acquisition and interest expenses before the circuit court in a single proceeding. 2 In this appeal from the court’s affirmance of the appeal board’s decisions, the following question is presented for our review. Did the circuit court err in affirming the Department’s interpretation and application of COMAR 10.09.11.-07E(ll)(c) and (e) and (14), which application resulted in a denial of full Medicaid reimbursement for Fort Washington’s mortgage interest expense and acquisition costs. Our answer to this question is “No”; accordingly, we will affirm the judgment of the circuit court.

The system for reimbursement of allowable costs to intermediate care facilities participating in the Medicaid Program is set forth in sections 15-105, 15-107, 15-108, and 15-114 of the Code. The statutory formulae have been ²⁰⁹ implemented by a series of regulations adopted by the Department, which are set forth in the Code of Maryland Administrative Regulations. Specifically, COMAR 10.09.11 sets forth the details of the reimbursement system. Under COMAR 10.09.11, each nursing home is paid a per diem rate for each Medicaid beneficiary receiving services.

That per diem rate is a composite figure, calculated by adding together the amounts to which a particular provider is entitled under four separate cost centers. Only one cost center used to determine Fort Washington’s per diem rate is involved in the appeal: the capital and property cost center. The applicable regulations describing the reimbursement to medicaid providers under the capital and property cost center are found in COMAR 10.09.11.07E. Those regulations provide that the capital and property cost center is itself a composite, permitting reimbursement for five allowable associated costs of a facility, including property taxes, property insurance, mortgage interest, lease costs, and depreciation.

Of those five, the only two at issue are the Department’s allowance of mortgage interest and related financing costs. Appellant challenges the Department’s interpretation of its own regulations with respect to capital cost reimbursement. Specifically, appellant contends that CO-MAR 10.09.11.07E(14), by incorporating COMAR 10.09.11.-07E(11)(c) and (e) by reference, requires that all maximum allowable debt cost, specifically mortgage debt interest, be indexed forward annually to allow for an inflationary adjustment to a provider’s existing debt. COMAR 10.09.11.07E(14) provides: Debt, and the interest on that debt, may not be allowed as a basis for reimbursable cost to the extent that the debt exceeds the allowable appraised value from section E(ll)(e) of this regulation.

COMAR 10.09.11.07E(11)(c), in turn, establishes the allowable debt for land, buildings, and movable equipment as follows: ²¹⁰ The allowance for movable equipment will be established at $2,200 per licensed bed for March, 1981, will be indexed forward as determined from § E(9) of this regulation, and will be added to the appraised value determined from § E(ll)(a) — (d) of this regulation. Further, COMAR 10.09.11.07E(ll)(e) establishes the ceiling on allowable debt for land, buildings and movable equipment: This limit will be established at $22,000 per licensed bed for March, 1981, and will be indexed forward as determined from § E(9) of this regulation. It is appellant’s position that: [I]n each year since the regulations became effective in January 1, 1983, these $22,000 and $2,200 ceilings have been increased. Newer facilities being constructed since 1983 have their actual debt “allowed” and reimbursed at the higher levels.

However, the Department has now determined that, even though the ceilings are indexed forward annually, Fort Washington will be denied the benefit of these future inflation adjustments despite the clear language of the regulations to the contrary. Rather, the maximum allowable debt for Fort Washington has been immutably established by the Department using the ceiling in effect on the date of the facility’s entry into the Medicaid Program. There is absolutely no basis for this interpretation of COMAR 10.09.11.07E(11)(c) and (e) and (14). There is no disputing that the regulatory caps set forth in § 7E(ll)(c) and (e) provide that they are to be indexed forward annually according to inflation factors described in COMAR 10.09.11.07E(9).

The Department, however, interprets the above-cited regulations to mean that a one-time maximum allowable mortgage debt ceiling is established for a facility for reimbursement purposes as of the time it becomes a Medicaid provider. That set cap is indexed forward, and the debt ceiling accordingly raised to account for inflation, only for the benefit of setting an initial debt ceiling for new providers entering the program. If the ²¹¹ capital cost debt of a new facility is higher than that of an older facility because of inflationary factors affecting the later entry, a corresponding higher allowable mortgage debt ceiling is required. Under this interpretation, once a facility becomes a participating provider, its allowable mortgage debt is capped as of the date of entry, and the Department does not thereafter increase the amount of allowable debt.

In response to this interpretation, appellant makes reference to the net capital rental value aspect of the capital and property cost center (net capital rental value is the mechanism by which nursing homes are reimbursed for the use of their physical facilities) to “appreciate the arbitrary and discriminatory nature of the Department’s interpretation of the inflation adjustment regulations.” We reject appellant’s interpretation; it completely ignores the fact that Fort Washington’s debt costs are fixed and, over time, continuously reduced, while capital rental value is changeable with economic conditions. Appellant’s interpretation would result in a windfall — the reimbursement rate factor for mortgage interest would be increased while the amount of interest on the mortgage debt is decreasing by virtue of the amortized retirement of its mortgage debt. The