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October 22, 1993



Respondent's Motion for Rehearing Overruled. Motion for Transfer Denied November 18, 1993.

Garrison, Montgomery, Flanigan

The opinion of the court was delivered by: Garrison

The Missouri Department of Social Services, Division of Medical Services (the Department), appeals from a judgment holding that a regulation establishing a new method of calculating amounts to be paid to nursing homes participating in the Missouri Medicaid program denies equal protection of the law. The respondent, Rolla Manor, Inc., d/b/a Rolla Manor Care Center (Rolla Manor), operates a nursing home providing long-term care to Medicaid recipients.


On June 18, 1990, the Department published in the Missouri Register an emergency regulation (the New Plan), later codified at 13 C.S.R. § 70-10.010, which established a new method of calculating per diem rates to be paid nursing homes participating in the Medicaid program. The regulation was to take effect July 1, 1990. The rate of per diem reimbursement under the New Plan was to be the greater of two calculations: (1) the allowable cost *fn1 per patient day determined by the Department from a desk-reviewed and/or field-audited cost report *fn2 covering a period ending in calendar year 1988, multiplied by 111.1% (thereby providing an 11.1% increase) plus $1.06 as a minimum wage adjustment; *fn3 or (2) the per diem rate in effect for services rendered on June 30, 1990. The first alternative provided the greater per diem rate for Rolla Manor, resulting in a rebased rate of $39.75.

Rolla Manor filed a complaint with the Administrative Hearing Commission (AHC) alleging that the New Plan violated equal protection of the law by not treating all providers equally. The basis of the complaint was that some participating nursing homes had fiscal years ending December 31, 1988, and therefore the 11.1% increase was applied to an allowable cost that necessarily included inflation during the entire year. In contrast, Rolla Manor claimed the New Plan discriminated against it because its fiscal year ended March 31, 1988, and its allowable cost to which the 11.1% increase was applied did not include inflation experienced between the end of its fiscal year and December 31, 1988.

The AHC found that the 11.1% adjustment factor under the New Plan represented an inflation adjustment of 3.7% per year for the three-year period of July 1, 1988 to June 30, 1991. It also found that because Rolla Manor had a fiscal year ending earlier than other facilities whose fiscal year ended on December 31, 1988, its new rate reflected less inflation and that "participants whose fiscal years end on December 31 receive the benefit of having the inflation they experienced from July 1, 1988, through December 31, 1988, counted twice--first in the 1988 allowable costs, which already reflect that inflation, and again in the 11.1 percent inflation adjustment, which includes one-half of 3.7 percent for that period." The Commission concluded, however, that it did not have authority to determine the constitutional validity of the regulation and denied the complaint.

Rolla Manor then sought a review by the circuit court, which held that the Department's application of the 11.1% adjustment violated equal protection guarantees by not treating similarly situated providers equally. It ordered the Department to increase Rolla Manor's per diem rate to reflect the inflation that had been allowed to other nursing homes with a fiscal year ending on December 31. *fn4 This appeal followed.


The Department raises two points on this appeal: (1) the trial court erred in finding that the New Plan violated Rolla Manor's equal protection guarantees because it applied an incorrect legal standard; and (2) even if the New Plan facially created a separate class that was treated differently, equal protection guarantees were not violated because the classification was rationally related to a legitimate governmental interest of controlling costs of the Medicaid program. Because we have concluded that we must reverse on the basis of Point II, Point I will not be discussed.

Distinctions made when a state distributes benefits unequally are subject to scrutiny under the Equal Protection Clause of the Fourteenth Amendment. Hooper v. Bernalillo County Assessor, 472 U.S. 612, 618, 105 S. Ct. 2862, 2866, 86 L. Ed. 2d 487, 493 (1985). If, however, state action neither creates a classification which burdens a "suspect class" nor impinges on a "fundamental right," it will survive an equal protection challenge if the classification is rationally related to a legitimate state interest (rational basis test). Adams v. Children's Mercy Hospital, 832 S.W.2d 898, 903 (Mo. banc 1992); Mahoney v. Doerhoff Surgical Services, 807 S.W.2d 503, 512 (Mo. banc 1991).

The trial court found that participation in the Medicaid program was voluntary and did not constitute a fundamental right, and that Rolla Manor was not a member of a suspect class. Neither of the parties suggests that those findings were inappropriate, and they agree that the correct standard for reviewing the equal protection claim in the instant case is the rational basis test.

Under the "rational basis" test, a classification must be sustained unless it is "patently arbitrary" and bears no rational relationship to a legitimate governmental interest. Frontiero v. Richardson, 411 U.S. 677, 683, 93 S. Ct. 1764, 1768, 36 L. Ed. 2d 583, 589 (1973). The test was ...

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