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Liberty House Nursing Home v. New Jersey Department of Health and Senior Services

March 5, 2012

LIBERTY HOUSE NURSING HOME, PETITIONER-APPELLANT,
v.
NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES, RESPONDENT-RESPONDENT.



On appeal from the New Jersey Department of Health and Senior Services.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 2, 2011

Before Judges Lihotz and St. John.

Petitioner Liberty House Nursing Home (Liberty) appeals from a September 23, 2010 final decision of the Commissioner of the Department of Health and Senior Services (DHSS) regarding the proposed reclassification of salary expenditures impacting its Medicaid funding level. The Commissioner agreed with Liberty and rejected DHSS's attempted enforcement of a newly espoused interpretation of a regulation, which required reclassification of salaries solely on the basis of the employees' status as owners or related parties, rather than the duties performed.*fn1 However, the Commissioner remanded the matter to allow DHSS to review the reasonableness of the reported salaries in light of the actual jobs performed by owner and related party-employees.

Liberty appeals the Commissioner's remand, arguing in a single point:

THE COMMISSIONER'S DECISION THAT THE DEPARTMENT COULD NOT LAWFULLY RE-CLASSIFY THE SALARIES IN QUESTION DISPOSED OF ALL OF THE ISSUES BETWEEN THE PARTIES, AND HER GRANT TO THE DEPARTMENT OF THE RIGHT TO COMMENCE A WHOLE NEW ADMINISTRATIVE PROCEEDING ON AN ISSUE THAT COULD HAVE BEEN, BUT WAS NOT, RAISED BY THE DEPARTMENT EARLIER IS WITHOUT LEGAL BASIS AND SHOULD BE REVERSED.

Following our consideration of the arguments presented on appeal, in light of the record and applicable law, we affirm.

Liberty is an inner city nursing home facility, which relies upon the admission of Medicaid beneficiaries as its principal source of patients and revenue. Since 2000, Israel Braunstein, one of Liberty's owners, and his two sons, Michael and Edward, (collectively the Braunsteins) have been full-time employees, performing a variety of functions for Liberty, including: "accounting; payroll; software; tax; union reporting; worker's compensation claims; allowances; and/or budget analysis."

This appeal centers on DHSS's review of the salaries paid to the Braunsteins. To appreciate the context of the underlying dispute, we pause to explain applicable regulations governing the calculation of a facility's Medicaid cost reimbursement rate and the relationship of salary expenditures to the rate's calculation.

Pursuant to the Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, DHSS is charged with "central responsibility for the development and administration of the State's policy with respect to health planning [and] hospital and related health care services[.]" N.J.S.A. 26:2H-1. Additionally, the Commissioner through DHSS administers all benefits New Jersey receives for medical assistance provided by the federal Social Security Act, 42 U.S.C.A. § 1396a(a)(30)(A);

42 U.S.C.A. § 1396(b)(2) (requiring Medicaid program participant states to develop methodologies for the calculation of rates used to reimburse the reasonable cost of providing services to Medicaid beneficiaries). The Commissioner is also guided by the provisions of the Medical Assistance and Health Services Act (the Act), N.J.S.A. 30:4D-1 to -64.

Under the Act's provisions and regulations promulgated thereunder,*fn2 participating nursing home facilities, like Liberty, must report to DHSS and identify service costs extended to Medicaid-eligible residents. See N.J.A.C. 8:85-3.2(a) (setting forth requirements for facility annual cost report submission). DHSS reviews the submissions, screening for the reasonableness of the expenses claimed for each category identified and assures reimbursement is made only for "reasonable" costs. N.J.A.C. 8:85-3.1. From this review, a per diem rate for reimbursement on behalf of Medicaid-eligible residents is set.

In order to ensure the "reimbursement [is] paid at rates which the State finds are reasonable and adequate by efficiently and economically operated facilities[,]" In re Medicaid Long Term Care Servs. Bulletin 85-4, 212 N.J. Super. 48, 52 (App. Div.) (discussing the standard for developing a reasonable rate based upon peer comparison or a facility's actual cost), certif. denied, 107 N.J. 31 (1986), rates are calculated using "standards and reasonableness" criteria, referred to as "screens." N.J.A.C. 8:85-3.3(a). See also 42 U.S.C.A. 1396a(a)(13). Screens are developed and applied to food costs, administration, housekeeping, and other general services. N.J.A.C. 8:85-3.7(e). Using the facility's prior fiscal year's reported costs, DHSS conducts a "desk review," matching each ...


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