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two CITY OF SEWARD, ALASKA
RESOLUTION 2013 -015
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, AUTHORIZING GENERAL TERMS OF SETTLEMENT OF A
RATE DISPUTE WITH THE STATE OF ALASKA AND PROVIDENCE
SEWARD MEDICAL AND CARE CENTER RELATING TO A MEDICAID
RATE APPEAL IN AN APPROXIMATE AMOUNT OF $6.1 MILLION OVER
FOUR YEARS, AND AUTHORIZING NEGOTIATION OF A FORMAL
SETTLEMENT AGREEMENT TO BE APPROVED WHEN NEGOTIATIONS
ARE COMPLETE
WHEREAS, the City of Seward ( "City ") owns the local hospital and long -term care facilities
which are operated on the City's behalf by Providence Health & Services ( "Providence ") as
Providence Seward Medical and Care Center ( "PSMC "); and
WHEREAS, PSMC filed a dispute with the State of Alaska Department of Health and Social
Services ( "State ") relative to the FY2011 Seward Mountain Haven Medicaid Rate, which was
established utilizing FY2009 as the "base year" for rates to be inflation adjusted for fiscal years
2011, 2012, 2013, and 2014; and
WHEREAS, the City and Providence are parties to a Management and Operating Agreement
which provides, in pertinent part, that: 1) the City shall own and have financial responsibility for
PSMC; 2) Providence assumes all rights, duties, liabilities and obligations arising from operation of
PSMC; 3) Providence shall negotiate, prepare and execute contracts in connection with the operation
of PSMC; 4) Providence shall notify the City of any proposed settlement of litigation on behalf of
PSMC involving payment of an amount in excess of $25,000; and ) Providence shall not assume or
be liable for any claim, liability, or obligation of PSMC arising from operation of PSMC pursuant to
the Agreement, except where such claim, liability or obligation arises from Providence's negligence
or material breach of the Agreement; and
WHEREAS, the State has given Providence a settlement offer with a deadline for acceptance
of March 1, 2013, and Providence, through their attorneys, has requested concurrence from the
Seward City Council on the proposed settlement offer based on the financial impact of the settlement
on PSMC and the City; and
WHEREAS, the State's settlement offer will increase the per diem base rate for Seward
Mountain Haven by $137.00 per patient per day, and adjusted rate will be used as the base rate to be
inflated for fiscal years 2012, 2013, and 2014, with a total estimated increased payment to Seward
Mountain Haven resulting from this adjustment over the four -year rate cycle, of approximately $6.1
million; and
imp WHEREAS, the Seward City Council met in executive session on February 26, 2013 to
CITY OF SEWARD, ALASKA
RESOLUTION 2013 -015
discuss the merits of the settlement offer.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA that:
Section 1. In the matter of the Providence Seward Medical Center Case No. 2012- MRC -02
FY2011 LTC Medicaid Rate Appeal, the Seward City Council hereby concurs with Providence
Health & Service's recommendation to approve a settlement offer from the State of Alaska, subject
to the conditions set forth in this Resolution, increasing the per diem base rate for Seward Mountain
Haven by $1 37.00 per patient per day, which adjusted rate would be used as the base rate to be
inflated for fiscal years 2012, 2013, and 2014. The estimated total increased payment to Seward
Mountain Haven resulting from this adjustment over the four -year rate cycle is approximately $6.1
million
Section 2. The Seward City Council hereby authorizes the City Manager and the City
Attorney to coordinate with the manager and operator of Providence Seward Medical & Care Center,
Providence Health & Services, and their legal counsel, in their negotiation of a settlement agreement
to be brought back to the Seward City Council for ratification.
Section 3. This resolution shall take effect immediately upon its adoption.
PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 28
day of February, 2013.
THE CITY OF SEWARD, ALASKA
1I1. I%
can Bardarson, Vice Mayor
AYES: Valdatta, Keil, Casagranda, Shafer, Terry, Bardarson
NOES: None
ABSENT: Seaward
ABSTAIN: None
ATTEST:
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Council Agenda Statement
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Meeting Date: February 28, 2013 ,��, q �
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From: Kristin Erchinger, Finance Directors
Agenda Item: Settlement of Rate Dispute with State of Alaska Related to Seward Mountain
Haven's Medicaid Rate for 2011, 2012, 2013 and 2014
BACKGROUND & JUSTIFICATION:
The City of Seward ( "City ") owns the local hospital and long -term care facility (collectively,
"PSMC ") which are operated by Providence Health & Services ( "Providence ") under management
agreement with the City. The City is financially responsible for the operations of the health facilities.
Providence has managed the long -term care facility in Seward on the City's behalf since April 2003.
Elders from the former Wesley facility were moved into the new Seward Mountain Haven ( "SMH ")
facility in October 2009. The 2009 year represented a rebasing year for the purposes of establishing
Medicaid rates for the subsequent fiscal years 2011, 2012, 2013 and 2014. The State of Alaska
Department of Health and Social Services ( "State ") established the 2011 rate for the operations of
SMH at $538.44 per day. PSMC filed a Notice of Appeal to these rates on the basis of two claims.
First, PSMC objected to the application and calculation of the "lower of cost or charges limitation ".
This methodology essentially reduces the Medicaid rate to the lower of either the charges assessed to
patients for the year, or the facility's costs for the year. PSMC argued this methodology should not
be applied to Seward's rate for two reasons: 1) the 2009 year was an anomaly since charges were
much lower in 2009 based on elders residing in the old Wesley facility for 75% of the year, resulting
in charges for the year being below costs, and 2) for the most part, patients in the facility were
predominantly Medicaid patients.
Second, PSMC objected to the State's decision not to allow a correction to under - reported charges
on the MR -0 -14 Form for the period used to establish the 2011 rates, which alone would justify an
increase in the per diem rate of $1 37.08. While the charges were under - reported on this particular
form, they were properly reported on the Medicare forms for the same year, which the State also had
available to them when establishing the 2011 rates.
Overall, the amount in dispute is estimated at approximately $12.3 million over four years. It is
difficult to provide precise estimates of the disputed amounts based on the need to make assumptions
about things such as census at SMH, the annual rate of inflation, etc. which are used to estimate total
Medicaid payments. The parties to this dispute have been in negotiations for many months, seeking
a compromise to avoid what would likely be a very lengthy and expensive litigation process for both
sides. The State has offered to settle this matter by increasing the per diem base rate for Seward
Mountain Haven by $137.00 per patient per day, and then inflation - adjusting the base rate for fiscal
years 2012, 2013, and 2014. The estimated total increased payment to Seward Mountain Haven
resulting from this adjustment over the four -year rate cycle is approximately $6.1 million. This
figure assumes an average census of 30 elders in SMH and inflation of approximately 2.09% in 2012
and 2.29% in 2013 and 2014. The parties agree that this settlement agreement does not apportion the
settlement amount among the contested issues in the Medicaid rate appeal.
CITY OF SEWARD
RESOLUTION 2013 -
INTENT:
This purpose of this resolution is to demonstrate the City Council's support of Providence's
recommendation to settle this rate dispute with the State of Alaska. This decision is made based on
the potential downside risk associated with a prolonged legal battle, as well as the State's intent to
argue that PSMC is not entitled to either a waiver of the lower of cost or charges issue, or correction
of an error on the submitted forms used as the basis for establishing rates. In the worst case scenario,
PSMC could potentially be fighting four separate years' rate cases with each case taking an estimated
two to four years to resolve, incurring significant legal fees with the risk of an adverse legal decision.
CONSISTENCY CHECKLIST: Yes No N/A
1. Comprehensive Plan (document source here): X
2. Strategic Plan (document source here): X
3. Other (list): X
FISCAL NOTE:
This resolution supports the recommendation to approve a legal settlement with the State of Alaska
in the amount of approximately $6.1 million which will accrue to the benefit of PSMC over a four -
year period. It is fair to expect that at least $2 million of that settlement will come directly to the
City of Seward to repay a loan granted to PSMC in 2011 by the Seward City Council, and be used to
cover debt service costs of Seward Mountain Haven. The remaining funds will be available to
PSMC to cover operational shortfalls, costs, and cash flow.
Finance Department: c
RECOMMENDATION:
D
City Council approve Resolution 2013 - authorizing general terms of settlement of a rate dispute
with the State of Alaska relating to a Medicaid rate appeal, and authorizing negotiation of a formal
settlement agreement to be brought back to the City Council for ratification.
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