In the Matter of the Nursing Rate Appeal by Stewartville Care Center.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A19-1624

In the Matter of the Nursing Rate Appeal by Stewartville Care Center.

Filed July 20, 2020
Affirmed
Worke, Judge

Minnesota Department of Human Services
File No. 35426

Samuel D. Orbovich, Pari I. McGarraugh, Fredrikson & Byron, P.A., Minneapolis,
Minnesota (for relator Stewartville Care Center)

Keith Ellison, Attorney General, Michael N. Leonard, Assistant Attorney General, St. Paul,
Minnesota (for respondent Minnesota Department of Human Services)

Considered and decided by Worke, Presid ing Judge; Frisch, Judge; and Schellhas,
Judge.
*
U N P U B L I S H E D O P I N I O N
WORKE, Judge
Relator challenges a final rate-setting or der, arguing that respondent engaged in
unpromulgated rulemaking, and its decision to disallow cert ain costs in the rate-setting
formula was arbitrary and capricious. We affirm.

* Retired judge of the Minnesota Court of Ap peals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.

2
FACTS
Relator Stewartville Care Center (Stewa rtville) is a nursing home located in
Olmsted County that receives medical-assist ance reimbursement. In 2015 and 2016,
Stewartville procured temporary nursing-pool services through annL eo Inc. (annLeo).
annLeo is a vendor management organization that provides software and services to assist
healthcare facilities to obtain supplemental healthcare personnel from a supplemental
nursing services agency (SNS A). annLeo charged Stewartv ille a $55 fee per shift (shift
fees) worked by a healthcare worker placed at its facility from participating SNSAs.
Stewartville reported all shift fees charged by annLeo to respondent Minnesota Department
of Human Services (DHS) in its 2015 and 2016 cost reports and classified them as services
from an SNSA.
In January 2017, DHS notified Stewartville that the agency’s rate calculations
effective January 1, 2017, refl ected adjustments to Stewartville’s 2015 cost report. DHS
disallowed approximately $115,610 in costs constituting an nLeo’s shift fees because it
determined that the charges by annLeo—which was at that time considered to be an
unregistered SNSA by the Minnesota Depa rtment of Health (MDH)—exceeded the
statutory maximum in its geographic region and were therefore not reasonable.
Stewartville appealed the adjustments to its 2015 cost report.
In May 2017, MDH notified a nnLeo that it did not meet th e statutory definition to
be considered an SNSA. MDH stated that while it had originally considered annLeo to be
an unregistered SNSA, further inquiry led to the conclusion that annLeo was not an SNSA
and that it did not need to register as one.

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In March 2018, DHS published Stewartville ’s rate notices fo r rates effective
January 1, 2018, which reflected adjustment s to Stewartville’s 2016 cost report. DHS
disallowed approximately $169,312 in costs constituting annLeo’s shift fees. Stewartville
appealed these adjustments to its 2016 cost report.
Following desk audits of DHS’s decisions to disallow the shift fees in Stewartville’s
2015 and 2016 cost reports, a human-services judge affirmed DHS’s decision to disallow
the shift fees in the 2015 cost report and a ffirmed in part DHS’s decision to disallow the
shift fees in the 2016 cost re port. Stewartville then request ed a consolidated contested-
case hearing.
In March 2019, the parties filed cross-mo tions for summary disposition. In May
2019, an administrative-law judge (ALJ) recommended that DHS’s summary-disposition
motion be granted after determining that DHS properly disallowed the costs because
annLeo was not an SNSA and therefore its shift fees coul d not be claimed as direct-care
costs constituting services from an SNSA.
In June 2019, Stewartville filed exce ptions to the ALJ’ s recommendation.
Stewartville contended that: (1) the rate re ductions would be unfair, unreasonable, and
contravene caselaw; (2) DHS’s rate adjustment s violated the purpose of the requirements
and regulations governing SN SAs codified at Minn. Stat . §§ 144A.70-.74 (2018) (SNSA
Act); and (3) DHS cannot do indirectly what it cannot do directly.
In September 2019, the commissioner of human services (commissioner) granted
DHS’s summary-disposition motion. The co mmissioner determined that the rate
reductions did not contravene caselaw, the disallowance did not contravene the purpose of

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chapter 144A because annLeo wa s not an SNSA, and Stewartville failed to establish that
the shift fees fell within the direct-care- costs definition under Minn. Stat. § 256R.02,
subd. 17 (2018). This certiorari appeal followed.
D E C I S I O N
Judicial review of the commissioner’s orde r is authorized pursuant to Minn. Stat.
§ 256.045, subd. 7 (2018). This court may reverse, remand, or modify the commissioner’s
decision if it prejudiced Stewartville’s substan tial rights and was: “(a) in violation of
constitutional provisions; or (b) in excess of th e statutory authority or jurisdiction of the
agency; or (c) made upon unlawful procedure; or (d) affected by other error of law; or
(e) unsupported by substantial evidence in view of the en tire record as submitted; or
(f) arbitrary or capricious.” See Minn. Stat. § 14.69 (2018).
“Summary disposition is the administrativ e equivalent of summary judgment.”
Pietsch v. Minn. Bd. of Chiropractic Exam’rs, 683 N.W.2d 303, 306 (Minn. 2004). Review
of a grant of summary disposition requires this court to determine whether there are any
genuine issues of material fact and whether th ere was an error in applying the law to the
facts. In re Assessment Issued to Leisure Hills Health Care Ctr., 518 N.W.2d 71, 75 (Minn.
App. 1994), review denied (Minn. Sept. 16, 1994). Although an appellate court exercises
judicial restraint when reviewing agency decisions, questions of law are reviewed de novo.
Fish v. Comm’r of Minn. Dep’t of Human Servs., 748 N.W.2d 360, 363 (Minn. App. 2008).
For challenges involving a cl aim that an agency’s decisi on was arbitrary and capricious,
we will not disturb the decision “so long as a rational connection between the facts found
and the choice made has been articulated.” Id. (quotation omitted).

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Rates paid to nursing facilities receivi ng medical assistance are established by
chapter 256R and are subject to a rate-setting procedure ove rseen by DHS. Minn. Stat.
§ 256R.01, subds. 1, 2 (2018). When setting a prospective payment rate, DHS reviews a
nursing facility’s past cost report and calcula tes the costs incurred that fall within the
statutorily reimbursable categories. Mi nn. Stat. §§ 256R.21-.26 (2018) (listing
reimbursable categories). DHS determines an appropriate payment rate for the upcoming
year based on a facility’s previous allowabl e costs. Minn. Stat. § 256R.21, subd.1.
Allowed costs are those which are “reported by the facility which are necessary for the
operation of the facility and the care of re sidents and which are reviewed by [DHS] for
accuracy.” Minn. Stat. § 256R.02, subd. 5 (2018). In addition, DHS can use only allowable
costs claimed by a nursing facility to compute the total payment rate. See Minn. Stat.
§ 256R.10, subd. 1 (2018) (listing five criteria required for a cost to constitute an allowable
cost for rate-setting purposes).
While DHS considers three broad rate cate gories when calculating a facility’s total
payment rate, the only category subject to this appeal is Stewartville’s operating payment
rate. See Minn. Stat. § 256R.21, subds. 3, 4 (2018). A facility’s operating payment rate is
based on its “other operating payment rate ” and “total care-rela ted payment rate.” Id.,
subd. 3. On appeal, Stewartville’s total care-related payment rate is at issue.
A facility’s total care-related payment rate is the sum of its direct-care payment rate
and other care-related payment ra te. Minn. Stat. § 256R.23, subd. 9 (2018). A facility’s
direct-care payment rate equals “the lesser of (1) the facility’s direct care costs per
standardized day, or (2) the facility’s direct care costs per standardized day divided by its

6
cost to limit ratio.”1 Id., subd. 7. “Direct care costs” include “services from a[n SNSA].”
Minn. Stat. § 256R.02, subd. 17.
An SNSA is defined as “a person, firm, corporation, partnership, or association
engaged for hire in the business of providing or procuring temporary employment in health
care facilities for nurses, nursing assistants, nurse aides, and orde rlies.” Minn. Stat.
§ 144A.70, subd. 6. Under the medical assistance program, an SNSA can be compensated
up to a certain maximum statutory rate. Minn. Stat. § 144A.74.
Unpromulgated rulemaking
Stewartville first argues that DHS’s disa llowance of annLeo’s shift fees constituted
unpromulgated rulemaking. 2 Stewartville contends that: (1) DHS adopted the role of
“unofficial enforcer” of the SNSA Act’ s maximum charges; (2) DHS added an
unauthorized cost-disallowance component to the SNSA Act’s maximum-charge mandate,
which constituted a new and unauthorized rate-setting mechanism not contemplated by the
legislature; and (3) no provis ion of chapter 144A allows or authorizes DHS to disallow
temporary pool costs paid by a nursing home.

1 Stewartville’s direct-care costs per standardi zed day were used to determine the direct-
care payment rate.
2 Unpromulgated rulemaking occurs when an agency announces a new rule of general
application without complying with statutory rulemaking requirements. See generally In
re Minn. Living Assistance, Inc., 934 N.W.2d 300, 309 (Minn. 2019) (explaining that rules
not adopted in compliance with statutory requirements are invalid), reh’g denied (Nov. 4,
2019). An agency does not engage in unpromulgated rulemaking when it applies existing
statutes or rules according to their plain language. See Cable Commc’ns Bd. v. Nor-W.
Cable Commc’ns P’ship, 356 N.W.2d 658, 667 (Minn. 1984).

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But DHS did not engage in unpromulgated rulemaking. In this case, after reviewing
the 2015 and 2016 cost reports, DHS determ ined that Stewartville’s reported costs from
annLeo’s shift fees were inaccurately categorized as being services from an SNSA because
MDH did not consid er annLeo an SNSA. Notably, on appeal, Stewartville does not
challenge MDH’s determination that annLeo is not an SNSA. And because MDH did not
categorize annLeo as an SNSA, the reported costs did not constitute direct-care costs under
Minn. Stat. § 256R.02, subd. 17. Further, wh ile annLeo’s fees may have satisfied the
criteria to be considered allowable costs as outlined by Minn. Stat. § 256R.10, subd. 1, the
reported costs still had to qualify as direct-c are costs under Minn. Stat. § 256R.02, subd.
17. Therefore, DHS did not engage in unpromulgated rulemaking by disallowing
Stewartville’s reported costs relating to annLeo’s fees.
While Stewartville’s argument that DH S’s disallowances co nstituted a new and
distinct rate-setting mechanism not allowed under chapter 144A may have had merit at the
time of the disallowances—when DHS capped the amount of Stewartville’s payments
based on maximum allowable charges in the SNSA Act—this appeal is from the
commissioner’s final order in which DHS disallowed the charges because annLeo is not an
SNSA. Stewartville requested a consolidated contested-case hearing, and the ALJ engaged
in a de novo review of the hearing record that the commissioner then reviewed. See In re
Rate Appeal of Benedictine Health Ctr., No. A05-873, 2006 WL 224289, *5 (Minn. App.
Jan. 31, 2006) (noting that when party requests contested-case hearing, ALJ engages in de
novo review and commissioner then ma kes decision based on hearing record), rev’d on
other grounds, 728 N.W.2d 497 (Minn. 2007). As such, MDH’s 2017 determination that

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annLeo was not an SNSA was part of the hearing record and, therefore, DHS did not adopt
a new rate-setting mechanism.
In support of its argument that DHS relie d on an unpromulgated legal interpretation
of the SNSA Act, Stewartville relies on In re Contested Cases of St. Otto’s Home v. Minn.
Dept. of Human Services, 437 N.W.2d 35 (Minn. 1989); White Bear Lake Care Ctr., Inc.
v. Minn. Dep’t of Pub. Welfare, 319 N.W.2d 7 (Minn. 1982); and In re Contested Case of
Ebenezer Soc’y v. Minn. Dep’t of Human Servs., 433 N.W.2d 436 (Minn. App. 1988). In
those cases, however, the agencies either added an adjustment or formula when calculating
a payment rate or based a disallowance on an e rroneous interpretation of a statute or rule.
See St. Otto’s Home, 437 N.W.2d at 42 (holding adjustment unreasonable following review
of agency’s interpretation of ambiguous language in newly adopted administrative rule in
light of past interpretation of predecessor rule); White Bear Lake Care Ctr., 319 N.W.2d at
9 (holding addition of per-diem formula to rate calc ulation constitute d unpromulgated
rulemaking when rule was unambiguous); In re Contested Case of Ebenezer Soc’y , 433
N.W.2d at 441 ( holding reclassification of costs c onstituted invalid ru lemaking because
language of rule was not ambiguous).
This case does not involve the interpretation of a newly adopted administrative rule.
Nor was there an unpromulgated legal interpretation of the SNSA Act, because Minn. Stat.
§ 256R.02, subd. 5, authorizes DHS to review cost reports for accuracy, and annLeo’s shift
fees were inaccurately categorized as reimbursable direct-care costs. Therefore, DHS did
not rely on an unpromulgated legal interpretation of the SNSA Act.

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Disallowed costs
Stewartville also argues that DHS acted arbitrarily and capriciously by disallowing
annLeo’s fees. Stewartville c ontends that DHS: (1) failed to consider the allowed-costs
provision of Minn. Stat. § 256R.10, subd. 1; (2) relied on factors not intended by the
legislature for the purpose of the SNSA Act a nd cannot do indirectly what it cannot do
directly; (3) failed to consider how rural facilities such as Stewartville are to procure skilled
nursing care during a workforce crisis; and (4) cannot retroactively change an interpretation
that facilities had relied on without first promulgating a rule.
While certain costs are allo wed if they meet the criteri a of Minn. Stat. § 256R.10,
subd. 1, in this case Stewartv ille categorized annLeo’s fees as direct-care costs from the
services of an SNSA. And as discussed above, annLeo’s costs had to be considered direct-
care costs to be included in Stewartville’s total operating costs. Because annLeo’s fees did
not constitute direct-care costs under Minn. Stat. § 256R.02, subd . 17, they are not
allowable under that category and it is irrelevant whether they satisfy the criteria of Minn.
Stat. § 256R.10, subd. 1. Therefore, DHS’s grant of summary disposition was not arbitrary
and capricious.
In addition, DHS did not re ly on factors not intended by the legislature relating to
the purpose of the SNSA Act. Because MDH did not recognize annLeo as an SNSA, DHS
was not enforcing or relying on the purpose or intention of the SNSA Act. However, even
assuming that Stewartville accurately characterized the purpose of the SNSA Act as being
the prevention of SNSAs from “ gouging” skilled nursing facilities with unchecked costs,
it appears that using a vendor management service to source staff from SNSAs is an attempt

10
to create a loophole in the purpose of the SNSA Act. Finally, Stewartville’s argument that
DHS cannot do indirectly what it cannot do direc tly is misplaced, gi ven that Minn. Stat.
§ 256R.02, subd. 5, allows DHS to review cost reports for accuracy.
As a final matter, Stewartville’s argument that DHS failed to consider the ability of
rural nursing facilities to procure skilled nursing care is a policy argument and not properly
before this court. 3 See LaChapelle v. Mitten , 607 N.W.2d 151, 159 (Minn. App. 2000)
(“Because this court is limited in its function to correcting errors it cannot create public
policy.”), review denied (Minn. May 16, 2000).
Affirmed.

3 While we recognize that ru ral facilities might have diffic ulties procuring supplemental
nursing services, this argument appears to be more appropriately directed toward the
legislature.