Hospitals prevail, as appeals court strikes down proposed new rules for calculating Medicaid reimbursements

By Kyla Asbury | May 1, 2019

KHSS [Public domain]

TALLAHASSEE — Hospitals from throughout Florida have prevailed in their appeal of a state agency's decision to reduce state Medicaid reimbursement rates, as a state appeals court said the agency never established how the new reimbursement rules would accomplish the cost-cutting goals desired by state legislators.

On April 26, a three-judge panel of the Florida First District Court of Appeal ruled in favor of 120 health care facilities, agreeing the Agency for Health Care Administration's proposed rules were "an invalid exercise of delegated legislative authority." 

Judge M. Kemmerly Thomas authored the decision and judges Ross L. Bilbrey and Thomas D. Winokur concurred.

The hospitals appealed a final orderfrom an administrative law judge finding the AHCA's rules valid. 

The hospitals had been reimbursed for Medicaid services by the agency on a fee-for-service basis in the years before the 2016 legislative session, when lawmakers sought to create a new method to compute outpatient reimbursement rates. 

The proposed new method would completely eliminate dependence on hospital cost reports and other calculations when determining reimbursement rates, according to the decision.

The hospitals did not agree with the methodologies and challenged the proposed rules. An administrative law judge found the rules were not "arbitrary or capricious" and were not vague. The hospitals then appealed, arguing that the administrative law judge made an error by declaring the rules valid. 

The appeal court found that despite a clear legislative directive put in place to achieve a certain dollar amount of savings, the agency did not prove whether its methodologies had achieved the legislative mandates or if they would result in cuts.

"The agency defends that the absence of auditing is irrelevant to the outcome of this proceeding because the 'math' the agency used was 'correct,' and the statutes do not impose an auditing requirement," the appellate judges said. "We disagree. As the agency never implemented its methodology by rule or in the outpatient plan, and never conducted an audit, the accuracy of the [Medicaid trend adjustments] reductions cannot be verified."

The court said the agency’s failure to verify that the procedures were achieving "legislatively directed cuts" and to make public its methodologies as rules are considered contravention of the law.

"While the agency has not adopted as a rule the methodology for the unit cost cap into the outpatient plan, it has implemented a methodology to calculate rates," the court said. "This methodology constitutes general applicability that implements, interprets, or prescribes law or policy, and meets the definition of a rule, yet the Agency did not adopt the methodology as a rule."

The court found that doing this made the cost cap invalid because it hadn't been adopted through rulemaking.

The court ruled that the administrative law judge erred in their conclusion and reversed the judge's decision.

Florida First District of Appeal Case numbers: 1D17-2027, 1D17-2033, 1D17-2035, 1D17-2040, 1D17-2045, 1D17-2049, 1D17-2053, 1D17-2054, 1D17-2057

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Florida Agency for Health Care Administration Florida First District Court of Appeal

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