Alaska Supreme Court Opinions made Available by Touch N' Go Systems and Bright Solutions

Touch N' Go, the DeskTop In-and-Out Board makes your office run smoother. Visit Touch N' Go's Website.
  This site is possible because of the following site sponsors. Please support them with your business.
www.gottsteinLaw.com

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Samissa Anchorage, Inc. v. State, Dept. of Health and Social Services (10/25/2002) sp-5639

Samissa Anchorage, Inc. v. State, Dept. of Health and Social Services (10/25/2002) sp-5639

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


SAMISSA ANCHORAGE, INC., an   )
Alaska corporation, d/b/a North Star    )    Supreme Court No. S-
10258
Adolescent Hospital,               )
                              )     Superior  Court Nos.  3AN-99-
3432
             Appellant,            )              and 3AN-00-3637
CI
                              )
     v.                       )    O P I N I O N
                              )
THE DEPARTMENT OF HEALTH )    [No. 5639 - October 25, 2002]
AND SOCIAL SERVICES, STATE    )
OF ALASKA; KAREN PERDUE, )
in her official capacity as the         )
Commissioner of the Alaska         )
Department of Health and Social    )
Services; THE MEDICAID RATE   )
ADVISORY COMMISSION, STATE    )
OF ALASKA; and JACK NIELSON,  )
in his official capacity as the Executive    )
Director of the Medicaid Rate           )
Advisory Commission,               )
                              )
             Appellees.            )
________________________________)


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Sharon L. Gleason, Judge.

          Appearances:  John F. Sullivan, Inslee, Best,
          Doezie  &  Ryder, P.S., Bellevue, Washington,
          for  Appellant.   Julie E. Bryant,  Assistant
          Attorney  General, Anchorage,  and  Bruce  M.
          Botelho,   Attorney  General,   Juneau,   for
          Appellees.
          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          EASTAUGH, Justice.

I.   INTRODUCTION

          The  State  of  Alaska made additional  payments  to  a

medical  services provider after the provider brought  successful

administrative claims against the state to increase the  Medicaid

reimbursement rates payable under AS 47.07.070. Does AS 09.50.280

require  the  state  to  pay the provider  prejudgment  interest?

Because  the providers claims under AS 47.07.070 are not  covered

by  AS 09.50.250s waiver of sovereign immunity, we hold that  the

state  is not liable for prejudgment interest under AS 09.50.280.

We  therefore  affirm the superior courts denial of  the  medical

service providers claims for prejudgment interest.

II.  FACTS AND PROCEEDINGS

          Samissa  Anchorage, Inc. (d/b/a North Star Hospital  or

North  Star)  provided  psychiatric services  to  state  Medicaid

patients between 1993 and 1996.  North Star challenged the  1993,

1994, and 1995 Medicaid reimbursement rates of the Department  of

Health and Social Services (the department) in one administrative

claim  and  challenged  the 1996 rate in  another.1   North  Star

ultimately  appealed both challenges to the commissioner  of  the

department  under 7 Alaska Administrative Code (AAC)  43.703  and

.704.2   North  Star  requested  prejudgment  interest  in   both

challenges.3

          The  departments June 1999 final decision in  the  rate

appeals  for years 1993, 1994, and 1995 concluded that the  rates

from  those years should be recalculated because North  Star  was

entitled  to  additional reimbursement.   The  decision  did  not

address North Stars prejudgment interest claim.  North Star filed

a superior court administrative appeal in July 1999 to compel the

department   to  reimburse  North  Star  the  amount   that   the

commissioner had determined North Star was underpaid; North  Star

requested,  among  other things, prejudgment interest.   In  late

1999 the state issued North Star two checks totaling $723,295  to

reimburse  North  Star under the adjusted payment  rate  for  the

medical services North Star had rendered in 1993, 1994, and 1995.

          The reimbursement did not include prejudgment interest.

          The department issued its final decision in North Stars

1996  rate  appeal in February 2000.  This time, the commissioner

expressly denied North Stars prejudgment interest claim,  stating

that  no statute or regulation authorizes an award of prejudgment

interest against the state in administrative proceedings  related

to  Medicaid  rates  pursuant to AS 47.07 or  the  Administrative

Procedures Act.  North Star filed a superior court administrative

appeal  from this ruling in March 2000.  In May 2000  North  Star

received  a  check for $959, to reimburse it under  the  adjusted

payment  rate  for the 1996 services. The reimbursement  did  not

include prejudgment interest.

          Superior  Court  Judge  Milton M.  Souter  consolidated

North  Stars two appeals.  North Star argued that it was entitled

to  prejudgment interest under AS 09.50.250 and .280 because  its

payment  rate  claims arose out of an express contract  with  the

state,  and that the state waived sovereign immunity for contract

claims under AS 09.50.2504 and for prejudgment interest on  those

contract  claims under AS 09.50.280.5 North Star argued  that  it

was  therefore entitled to prejudgment interest on  its  contract

claims.  The  department  argued that the  state  did  not  waive

sovereign   immunity  under  AS  09.50.250   for   payment   rate

challenges.  The department asserted that North Star brought  its

claim   under   the  administrative  procedures  prescribed   for

challenges  of  payment rates calculated under AS 47.07.070,  and

consequently  contended  that North  Star  was  not  entitled  to

prejudgment interest.

          The  superior court reversed the administrative  denial

of  prejudgment  interest.   It held that  North  Stars  Medicaid

provider  agreement  is  a contract.  It  further  held  that  AS

09.50.250  expressly authorizes prejudgment interest in  contract

cases regardless of whether they are first required to be pursued

in  administrative proceedings.  The superior court  remanded  to

the department for award of prejudgment interest.

          The  department petitioned for rehearing  and  Superior

Court  Judge  Sharon L. Gleason, to whom the case was  reassigned

after  Judge  Souter  retired, vacated the remand  order  to  the

extent  it  allowed  North Star to recover prejudgment  interest.

Judge  Gleasons decision on rehearing determined that North  Star

could  not  have  brought an action under  AS  09.50.250  because

health care providers must challenge Medicaid payment rates under

7  AAC 43.7036 and .704.7  Judge Gleasons decision reasoned  that

those  sections  of the administrative code establish  procedures

that  involve  the Department of Health and Social Services,  not

the  Department  of  Administration  as  AS  09.50.250  and  .280

require.

          Applying  our  decision in Danco Exploration,  Inc.  v.

State, Department of Natural Resources,8 the superior court ruled

that  administrative  appeals  are  not  encompassed  within   AS

09.50.250,  and therefore prejudgment interest is  not  available

under  that  statutory  provision in this administrative  appeal.

The superior court further held that no other statutory waiver of

sovereign  immunity  allowing an award  of  prejudgment  interest

against  the  state  applied.   The superior  court  vacated  the

original  remand  order  and affirmed  the  departments  decision

denying prejudgment interest.9

          North Star appeals.

III. DISCUSSION

     A.   Standard of Review

          We independently review administrative agency decisions

when the superior court sits as an intermediate court of appeal.10

We  apply  the  substitution of judgment test to legal  questions

where  no  agency  expertise is involved, such  as  questions  of

statutory interpretation or other analysis of legal relationships

about which courts have specialized knowledge and experience.11

     B.   North  Star  Was  Not  Entitled To Recover  Prejudgment
          Interest.
          
          North  Star  argues that it brought  its  payment  rate

claims  under  AS  09.50.250, making it eligible for  prejudgment

          interest under AS 09.50.280.  It asserts that sections .250 and

.280  allow prejudgment interest in this case because North  Star

brought contract or quasi-contract claims.  It contends that  the

department  erred  because  it  did  not  recognize  North  Stars

contractual  relationship with the department  and  asserts  that

there  was  indeed  a  contractual relationship.   Alternatively,

North  Star argues that it has quasi-contractual claims based  on

unjust  enrichment.  It asserts that it was unjustly  denied  the

correct  rate for its services and that its claims therefore  lie

within  sections .250 and .280.  Finally, North Star argues  that

it  is  entitled  to  prejudgment interest because  it  exhausted

administrative remedies under section .250; because Alaska courts

award  prejudgment interest as part of compensatory damages;  and

because  the  plain  language  of  AS  47.07.070(b)(1)  evidences

legislative intent to require the department to reimburse  health

care  facilities for the time value of the money  the  department

incorrectly withheld.

          The  department argues that North Star could only bring

its  payment  rate claims under AS 47.07.070, the  statute  which

governs  the Department of Health and Social Services rate-making

decisions.   The department asserts that our decision in  Danco12

precludes North Stars prejudgment interest claims.

          1.   Only  the  legislature  can authorize  prejudgment
               interest awards against the state.
               
          [U]nless   interest  is  specifically   authorized   by

legislative enactment, it may not ordinarily be assessed  against

the  State in any action.13  In other words, only the legislature

can waive the states sovereign immunity and authorize an award of

prejudgment  interest against the state.  The  question  here  is

whether the legislature authorized prejudgment interest awards in

payment rate challenges.

          Alaska Statute 09.50.250 waives sovereign immunity  and

allows  actionable  claims  against  the  state  that  sound   in

contract,  quasi-contract,  or tort.   Alaska  Statute  09.50.280

authorizes interest awards against the state for actions  brought

          under section .250.  We noted in Stewart & Grindle, Inc. v. State

that [s]ince AS 09.50.250 and 09.50.280 were passed together  and

amended together by the same legislative act, it is clear that AS

09.50.280 was intended to afford a right to pre-judgment interest

against   the  State  only  where  AS  09.50.250  established   a

substantive cause of action.14  Thus, this case turns on  whether

North  Star brought or could have brought an action under section

.250.

          2.   North Star is not entitled to prejudgment interest
               because payment rate challenges are not cognizable
               claims under AS 09.50.250.
               
          We  rejected a claim similar to North Stars  in  Danco,

the case that controls here.  There we held that [administrative]

appeals  [under  11  AAC  02.010] are not encompassed  within  AS

09.50.250.15   Judge  Gleason  in this  case  reasoned  that  the

administrative procedures for challenging payment rate  decisions

were similar to the administrative procedures for challenging the

Department  of  Natural Resources decision that  we  reviewed  in

Danco.  The superior court held that North Star did not and could

not  have  maintained  an independent contract  action  under  AS

09.50.250   regarding  Medicaid  ratemaking  decisions   of   the

Department of Health and Social Services.

          North  Star attempts to distinguish Danco by contending

that  North  Stars claims, unlike Dancos, sound in  contract  and

therefore  lie within section .250.  North Star argues  that  its

agreement with the department contains the necessary elements  of

a  contract,  including  a description  of  the  services  to  be

provided,  the conditions of payment, and an indemnity  and  hold

harmless  provision.   North Star asserts  that  both  sides  are

federally  mandated to enter into the agreement16  and  that  the

right  to  sue for money owed originates with the agreement.   It

consequently  reasons that [t]he States failure to pay  the  full

rate  required by the regulations and statutes incorporated  into

the   provider  agreement  constitutes  a  breach  of   contract.

Finally,  North  Star  argues that courts in other  jurisdictions

          have deemed the Medicaid health care provider agreement a

contract.

          The  department responds that North Stars payment  rate

claims  are  not contract claims.  Alternatively, the  department

asserts  that  it  is  irrelevant whether the provider  agreement

between  North Star and the department is a contract because  our

decision  in Danco prevented North Star from bringing  an  action

under section .250.

          Danco  involved  a  state lease  sale  in  which  Danco

Exploration, Inc. submitted a winning bid.17  After it was awarded

the  leases,  Danco  missed a payment deadline  by  one  day  and

consequently   was  denied  the  leases.   Danco   appealed   the

rescission  to  the  commissioner of  the  Alaska  Department  of

Natural  Resources  (DNR)  and later appealed  the  commissioners

decision to the superior court.  The superior court reversed  the

commissioners decision and ordered that the leases be  issued  to

Danco.   Danco moved for an award of interest on its initial  bid

deposit  and  on the balance of its bonus payment.  The  superior

court refused to award interest and Danco appealed.18

          We  reiterated what we had stated in Stewart & Grindle,

that  only  the  legislature  can authorize  awards  of  interest

against  the state and that [s]ection .280 only applies where  AS

09.50.250  establishes a substantive cause  of  action.19   Danco

argued  on  appeal  that its claims sounded  in  either  tort  or

contract, and therefore came within section .250.20

          We noted that 11 AAC 02.010 provided the administrative

procedures  through  which  a  lease  bidder  could  challenge  a

decision  of  the DNR.21  We ultimately held that 11  AAC  02.010

appeals  are  not encompassed within AS 09.50.250.  A  party  who

brings  an  appeal from a commissioners decision to the  superior

court  is  bound  by  the result of such an appeal  and  may  not

maintain a separate action under section .250.22

          Danco  controls  here.23   With  regard  to  waiver  of

sovereign  immunity  under AS 09.50.250, we  find  no  reason  to

          distinguish between the administrative procedures here and those

we  reviewed  in Danco.  Accordingly, North Star could  not  have

maintained a section .250 action because its remedy was to pursue

the  administrative procedure provided in 7 AAC 43.703 and  .704;

this   procedure   required  that  North   Star   challenge   the

commissioners  denial by administrative appeal  to  the  superior

court,  and did not permit a separate action under section  .250.

Although  North Star refers us to cases from other  jurisdictions

that  allow  prejudgment  interest, our previous  reading  of  AS

09.50.250  mandates  our  rejection of  North  Stars  prejudgment

interest claims.

          3.   North  Star  has not demonstrated any other  basis
               for recovering prejudgment interest.
               
          Alaska  Statute 09.50.250 expressly permits one with  a

contract  claim  against the state to bring an  action  in  state

court,  and  claims  under  AS 44.77  may  be  brought  under  AS

09.50.250   if  more  than  one  year  has  elapsed   without   a

departmental  decision after the claimant presents its  AS  44.77

administrative claim.24

          But  North Stars disputes with the department about the

medical  provider reimbursement rate were not contractual  claims

and  were  not brought as contract actions in state  court;  they

concerned   administrative  rate-making  and  were   brought   as

administrative disputes.  Because these rate challenges  did  not

lie  within  section  .250, it does not  matter,  as  North  Star

argues, whether North Star had a contract with the state, whether

North  Star  exhausted administrative remedies,  or  whether  its

claims can be characterized as ones for unjust enrichment.  North

Star  was  required to bring its claims under AS  47.07.   Alaska

Statute 47.07 does not itself award prejudgment interest  and  is

not listed in section .250s waiver of sovereign immunity.

          Alaska  Statute 09.50.250 does encompass some types  of

claims medical services providers might bring.  It provides  that

A  person  who may present [a contract claim] under AS 44.77  may

not bring an action under [AS 09.50.250] except as set out in  AS

          44.77.040(c).25  Alaska Statute 44.77.040(c) permits a medical

services  provider  that  contends that the  department  has  not

decided  within one year an administrative claim presented  under

AS  44.77.010  to  bring  an action . . . under  AS  09.50.250.26

Because   section  .250  contemplates  such  a   claim   and   AS

44.77.040(c)  expressly  provides for it,  a  provider  whose  AS

44.77.010  administrative claim is undecided for  more  than  one

year  after  it  is submitted and who brings a successful  action

against  the  state  would  be eligible  to  recover  prejudgment

interest  under AS 09.50.280.  But that is not the type of  claim

North  Star  has, and that is not how North Star proceeded  here.

Instead,  North  Star challenged the payment  rate  determination

that  the  department  made  under AS  47.07.070.   Likewise,  it

brought  its claims as administrative disputes in the  Department

of  Health and Social Services under 7 AAC 43.703 and  not  as  a

superior court action under AS 44.77.040(c), or as claims to  the

Department of Administration.  North Stars claims were  therefore

not  ones  as set out in AS 44.77.040(c), and were therefore  not

within section .250.27

          North Star understandably emphasizes the injustice  and

inequity that will result if its interest claims are denied.   It

also  asserts that denial will encourage the department  to  drag

out these Medicaid rate appeals for as long as possible while the

state  has  the  interest-free use of the  funds.   Our  decision

insulates   the  department  from  prejudgment  interest   claims

resulting from delayed rate-making decisions, to the detriment of

service  providers whose rate-making requests are  delayed.   But

such concerns are better addressed to the legislature, and do not

alter  our  reading  of  AS 09.50.250 and  .280.   Moreover,  the

legislature  provided  a  remedy  for  delay  by  establishing  a

grievance  reporting  procedure under AS 47.07.075(b)(3).28   Its

adoption  of this remedy implies that the legislature  recognized

the  possibility of delay, but chose to deal with it by  adopting

the  reporting  procedure rather than permitting interest  claims

          against the state.  We conclude that the legislature did not

intend prejudgment interest to be a remedy for delay.

IV.  CONCLUSION

          Because  AS  09.50.250 does not apply to administrative

appeals brought under AS 47.07.070, we AFFIRM the superior  court

decision  that  affirmed the departments denial  of  North  Stars

prejudgment interest claims.

_______________________________
     1     The  department determines the rate  at  which  health
service  providers are reimbursed for services rendered to  state
benefits  recipients.  AS  47.07.070 states,  in  part:  (a)  The
department shall set the prospective rate of payment to a  health
facility  under  this chapter . . . based  on  a  fair  rate  for
reasonable costs incurred by the facility.

     2    To challenge payment rate determinations, providers may
request reconsideration of the rate by the executive director  of
the  Medicaid Rate Advisory Commission Staff  under 7 AAC  43.701
(2002).   Providers  may  file an administrative  appeal  to  the
commissioner  of  the  department under 7 AAC  43.703  (2002)  to
challenge  the executive directors determination in  lieu  of  or
after  the executive directors reconsideration.  The commissioner
assigns  the  appeal to a hearing officer under 7 AAC  43.704  to
make a preliminary recommendation after conducting a hearing.

     3     The  parties,  the department, and the superior  court
have  consistently referred to North Stars interest claim as  one
for   prejudgment  interest.   Although  the  administrative  and
judicial  procedure North Star followed here  did  not  call  for
entry  of a judgment as that term is usually used, we will  refer
here  to  North  Stars  interest claim  as  one  for  prejudgment
interest.

     4    AS 09.50.250 states, in part:

          A  person  or corporation having a  contract,
          quasi-contract,  or tort  claim  against  the
          state  may bring an action against the  state
          in  a  state court that has jurisdiction over
          the  claim.   A  person who may  present  the
          claim  under AS 44.77 may not bring an action
          under  this section except as set out  in  AS
          44.77.040(c).
          
     5     AS 09.50.280 states:  If judgment is rendered for  the
plaintiff,  it shall be for the legal amount found due  from  the
state  with  interest as provided under AS 09.30.070 and  without
punitive damages.

     6     7 AAC 43.703 states, in part: (a) A party aggrieved by
a  written  determination of the executive director under  7  AAC
43.701(a) . . . may request reconsideration under 7 AAC 43.701(b)
or may file an administrative appeal to the commissioner.

     7     7  AAC  43.704  provides the procedure  by  which  the
commissioner  assigns  the administrative  appeal  to  a  hearing
officer;  the  hearing  officer conducts a hearing;  the  hearing
officer  proposes  a  decision; and  the  commissioner  issues  a
decision or refers the appeal back to the hearing officer.

     8    924 P.2d 432 (Alaska 1996).

     9    Judge Gleasons decision on rehearing stated:

               North  Star did not and could  not  have
          maintained  an  independent  contract  action
          under  AS  09.50.250 regarding  the  Medicaid
          ratemaking  decisions of  the  Department  of
          Health  and Social Services.  Instead, health
          care  providers  who  dispute  Medicaid  rate
          determinations   must  pursue  administrative
          procedures    provided    by    [regulation],
          including  the right to judicial  review.   7
          AAC 43.703-704.  The Alaska Supreme Court has
          ruled  in  Danco that administrative  appeals
          are  not encompassed within AS 09.50.250, and
          therefore   prejudgment   interest   is   not
          available  under that statutory provision  in
          this administrative appeal.  924 P.2d at 434.
          No  other  statutory provision authorizes  an
          award  of  prejudgment interest  against  the
          State  in administrative proceedings pursuant
          to  AS  47.07.  The States sovereign immunity
          can  only  be waived by the legislature,  not
          the  court,  and  no  waiver  of  the  states
          immunity  with  respect to  the  recovery  of
          prejudgment  interest has  occurred  in  this
          administrative review proceeding.
          
(Footnotes omitted.)

     10     Justice v. RMH Aero Logging, Inc., 42 P.3d  549,  552
(Alaska 2002).

     11    Id. (internal quotation marks and citation omitted).

     12    924 P.2d 432 (Alaska 1996).

     13     Stewart & Grindle, Inc. v. State, 524 P.2d 1242, 1245
(Alaska 1974).

     14    Id. (internal footnote omitted).

     15    924 P.2d at 434.

     16    42 C.F.R.  431.107(b) (2001) states, in part:

          Agreements.  A State plan must provide for an
          agreement  between  the Medicaid  agency  and
          each   provider  or  organization  furnishing
          services under the plan in which the provider
          or  organization  agrees to:   (1)  Keep  any
          records  necessary to disclose the extent  of
          services    the    provider   furnishes    to
          recipients;  (2) On request, furnish  to  the
          Medicaid agency, the Secretary, or the  State
          Medicaid  fraud  control  unit  .  .  .   any
          information maintained under paragraph (b)(1)
          of this section and any information regarding
          payments   claimed   by  the   provider   for
          furnishing  services  under  the  plan;   (3)
          Comply   with   the  disclosure  requirements
          specified  in  part 445, subpart  B  of  this
          chapter;  and  (4)  Comply with  the  advance
          directives requirements for hospitals . . . .
          
     17    924 P.2d at 433.

     18    Id. at 433-34.

     19     Id.  at  434 (citing Stewart & Grindle, 524  P.2d  at
1245).

     20     We  determined that [s]ince Danco did not purport  to
bring  this  claim under section .250 its claim must be  that  it
could have done so, and that it would be unduly technical to deny
it interest based on a mere matter of form.  Id.

     21    Id. (citation omitted).

     22    Id.

     23     The  department is correct that we did  not  need  to
decide in Danco whether Danco and DNR had a contract.  Similarly,
we  need not decide whether North Star and the department  had  a
contract.

     24    AS 09.50.250; AS 44.77.040(c).

     25    AS 09.50.250.

     26    AS 44.77.040(c) provides:

          If  the claimant does not accept the decision
          of  the  Department  of  Administration,  the
          claimant  may obtain judicial review  of  the
          decision  in  accordance with AS 44.62.560  -
          44.62.570.   A  claimant may  also  bring  an
          action under AS 09.50.250 - 09.50.300 at  any
          time  after  one year has elapsed  since  the
          presentation of the claim under AS 44.77.010,
          if   no   decision  has  been  made  by   the
          department.
          
     27     In a footnote, the superior court remarked that North
Star  could not rely on AS 44.77.040.  The court correctly  noted
that:

          [Alaska  Statute  44.77.040]  does  allow  an
          action  under  AS 09.50.250  with  regard  to
          decisions of the Department of Administration
          when  that state agency has delayed making  a
          payment  decision  on a  claim,  including  a
          Medicaid claim, that had been presented to it
          for  over  one  year. . . . [T]hat  statutory
          provision is inapplicable to the review of  a
          different action by a different state  agency
          a  Medicaid ratemaking determination  by  the
          Department of Health and Social Services.
          
     28    AS 47.07.075(b)(3) states in pertinent part:

          [I]f  either time limit set under (1) or  (2)
          of this subsection is not met, the department
          shall   report  the  noncompliance   to   the
          legislature and the governor . .  .  with  an
          explanation  of the length of delay,  reasons
          for the delay, and proposed corrective action
          by the department to ameliorate the causes of
          delay.