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Edgemont Manor Nursing Home, Inc. v. Commonwealth

Court of Appeals of Kentucky

November 30, 2018

EDGEMONT MANOR NURSING HOME, INC. AND HMS ENTERPRISES, LLC APPELLANTS
v.
COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES AND DEPARTMENT FOR MEDICAID SERVICES APPELLEES

          APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 06-CI-00281

          BRIEFS FOR APPELLANTS: James M. Burd Edward M. O'Brien Louisville, Kentucky.

          ORAL ARGUMENT FOR APPELLANTS: Edward M. O'Brien Louisville, Kentucky.

          BRIEF AND ORAL ARGUMENT FOR APPELLEES: Catherine York Frankfort, Kentucky.

          BEFORE: JOHNSON, [1] JONES, AND KRAMER JUDGES.

          OPINION

          JONES, JUDGE:

         Appellants, Edgemont Manor Nursing Home, Inc. ("Edgemont"), and HMS Enterprises, LLC ("HMS"), appeal an order of the Franklin Circuit Court denying their motion for an order directing Appellees, Cabinet for Health and Family Services (the "Cabinet") and Department for Medicaid Services ("DMS"), to pay pre- and post-judgment interest on wrongfully-withheld Medicaid reimbursements. Following a review of the record and applicable law, we AFFIRM.

         I. Background

         During the time relevant to this appeal, Edgemont and HMS owned and operated Edgemont Manor Nursing Home in Cynthiana, Kentucky, which participated in the Kentucky Medical Assistance Program ("Medicaid").[2] The Cabinet is responsible for managing Medicaid reimbursements to providers, such as Edgemont and HMS. This arrangement was governed by a Medicaid Provider Agreement (the "Provider Agreement"), which included a requirement that the Cabinet reimburse providers according to federal and state statutes and regulations.

         In October of 2003, DMS sent a demand letter to Edgemont seeking recoupment of funds relating to an audit of Edgemont's February 1995 cost report. Edgemont contended that DMS's claim was barred by the applicable statute of limitations, which it contended was found in KRS[3] 413.120(3) and not, as DMS asserted, the statute of limitations found in KRS 413.090(2), which governs actions based upon written contracts. To support its contention, Edgemont argued that "although a Provider Agreement is signed by Edgemont as part of the Medicaid reimbursement process, that agreement does not govern the nature of reimbursement . . . ." Edgemont contended that DMS's claims against it were premised on statutory or regulatory authority and, because there was no other applicable limitations period, the general limitations period found in KRS 413.120(3) must apply. The parties engaged in dispute resolution under 907 KAR[4]1:671, Section 8, and DMS determined that its claim was not barred by the statute of limitations. Edgemont appealed DMS's determination to the Cabinet's Hearing Officer, which affirmed. The Cabinet then proceeded to recoup approximately $65, 260.23 in funds from HMS.

         In February of 2006, Edgemont and HMS filed a petition for appeal and motion for declaratory and injunctive relief in Franklin Circuit Court. The petition alleged that, pursuant to the Cabinet's own regulations, it had no legal authority to recoup funds from HMS. Accordingly, the petition asserted that the unlawful confiscation of funds from HMS presented immediate and irreparable harm, such that the issuance of a temporary or permanent injunction was necessary. Additionally, Edgemont and HMS maintained their position that any claims for recoupment by the Cabinet against Edgemont and HMS were barred by the doctrine of laches and the statute of limitations found in KRS 413.120(2). The petition made no mention of the Provider Agreement or any rights Edgemont or HMS had under the Agreement.

         The trial court held the case in abeyance pending the Kentucky Supreme Court's final decision in Commonwealth v. EPI Corp., No. 2006-SC-000348-DG, 2008 WL 5274857 (Ky. Dec. 18, 2008). Following rendition of the EPI opinion, the trial court denied the Cabinet's motion for summary judgment and found that the Cabinet was barred from collecting overpayments for fiscal years 1994-96 under the statute of limitations found in 907 KAR 1:110, Section 3.[5]Accordingly, the trial court ordered the Cabinet to return any sums it had already recouped. The Cabinet then appealed the trial court's order to this Court, which affirmed. Cabinet for Health & Family Serv. ex rel. Commonwealth v. Edgemont Manor Nursing Home, Inc., No. 2011-CA-000308-MR, 2012 WL 1758152 (Ky. App. May 18, 2012).

         On remand, Edgemont and HMS moved the trial court for an order directing the Cabinet to pay Edgemont the sums it believed it was owed. In addition to seeking return of the $65, 260.23 the Cabinet had recouped from HMS, Edgemont and HMS sought prejudgment interest of $30, 628.34 and post-judgment interest of $15, 823.99. In their motion, Edgemont and HMS acknowledged that, in many circumstances, agencies of the Commonwealth would be immune from paying interest. Edgemont and HMS contended, however, that case law held that KRS 45A.245 specifically authorized an award of pre-judgment interest against an agency of the state when the right to payment arose out of a contractual relationship. While the trial court ordered the Cabinet to pay Edgemont and HMS the principal amount of $65, 260.23, it ultimately concluded that the Cabinet was immune from paying interest on that amount. The trial court's decision was based on its belief that KRS 45A.245 waived sovereign immunity only for damages on contracts formed under the Model Procurement Code. As the Provider Agreement was not a Model Procurement Code contract, the trial court found that KRS 45A.245 was inapplicable. Edgemont and HMS appealed the trial court's order denying payment of interest to this Court.

         A panel of this Court reversed. The Court found that the plain language of KRS 45A.245 "specifically waives governmental or sovereign immunity for contract actions against the Commonwealth." Edgemont Manor Nursing Home, Inc. v. Commonwealth, No. 2013-CA-001145-MR, 2015 WL 1778185, at *2 (Ky. App. Apr. 17, 2015). Looking to Commonwealth v. Samaritan Alliance, LLC, 439 S.W.3d 757 (Ky. App. 2014), the Court concluded that the trial court had erred in finding that KRS 45A.245 applied exclusively to contracts formed under the Model Procurement Code. Accordingly, the Court remanded with instructions for the trial court to "determine whether Edgemont and HMS are entitled to pre-and/or post-judgment interest, and if so, the rate at which such ...


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