Mississippi Division of Medicaid and Drew Snyder, in his Official Capacity as Director of Mississippi Division of Medicaid v. Windsor Place Nursing Center, Inc. d/b/a Windsor Place Nursing & Rehab Center, Billdora Senior Care, LLC, Lexington Manor Senior Care, LLC and Magnolia Senior Care, LLC, 296 So.3d 68

Background

In 2008 the Mississippi Division of Medicaid (DOM) commissioned Clifton Gunderson to audit long-term care (LTC) provider cost reports; the audit prompted DOM to desk-review and adjust several providers’ cost reports to disallow "legend drug" (prescription) costs.
DOM adjusted Windsor’s cost reports for 2005, 2007, 2008 and Senior Care’s 2007 reports, seeking recoupment of specified amounts alleged to have been improperly claimed.
Providers administratively appealed, arguing the state Medicaid plan and cost-report instructions allowed inclusion of prescription drug costs that were "not covered by the Medicaid Drug Program" (i.e., not paid by Medicaid); they also relied on DOM’s historical practice of treating such costs as allowable.
Two Medicaid hearing officers and the DOM executive director upheld the disallowances, concluding drugs covered by Medicaid are directly reimbursed to pharmacists and therefore non-allowable on LTC per-diem cost reports.
The chancery court reversed, finding DOM had effectively changed policy and improperly applied new rules retroactively; the Mississippi Supreme Court reversed the chancery court and reinstated DOM’s decision, holding the disallowances were supported by substantial evidence and consistent with the state plan, DOM policy, and controlling statutes.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether DOM’s disallowance of legend drug costs was supported by substantial evidence and within DOM’s authority	Providers: state plan and cost-report instructions allow legend drug costs not paid by Medicaid to be included; DOM historically permitted inclusion	DOM: statute, state plan, and PPM require drugs covered by Medicaid be billed directly to pharmacists (POS) and thus are non-allowable on per-diem cost reports	Court: DOM’s decision was supported by substantial evidence, not arbitrary, and within its authority (reversed chancery court)
Whether DOM impermissibly applied new rules retroactively (arbitrary/capricious)	Providers: DOM changed practice in 2008 and applied new interpretation before formal amendments (May 2009/Mar 2010)	DOM: adjustments corrected prior reporting errors and did not constitute retroactive rulemaking or rate-methodology change	Court: adjustments were permissible corrections; no unlawful retroactive rule change found
Proper construction of "not covered by the Medicaid Drug Program" in state plan/instructions	Providers: means "not paid for" by Medicaid, so drugs for which Medicaid did not pay are allowable when provider paid	DOM: means drugs not included in Medicaid formulary / not subject to direct reimbursement; drugs covered by program are billed via POS and non-allowable on cost reports	Court: sided with DOM — drugs covered by Medicaid’s drug program are subject to direct reimbursement and are non-allowable costs on cost reports
Standard of review / deference to agency interpretation of rules	Providers: DOM’s past practice and internal inconsistency undermine deference; chancellor deferred to historical practice	DOM: agency interpretation of its rules merits deference under administrative-review standards	Court: applied established administrative-review standards, affording deference to DOM’s interpretation of its rules; separate opinions noted disagreement about scope of deference (special concurrence would end agency deference; dissent emphasized factual evidence of DOM practice)

Key Cases Cited

Crossgates River Oaks Hosp. v. Miss. Div. of Medicaid, 240 So. 3d 385 (Miss. 2018) (standard for judicial review of agency decisions and treatment of agency rule interpretation)
Sierra Club v. Miss. Envtl. Quality Permit Bd., 943 So. 2d 673 (Miss. 2006) (agency interpretation of rules is a question of law reviewed de novo but may receive deference)
King v. Miss. Military Dep’t, 245 So. 3d 404 (Miss. 2018) (courts—not agencies—resolve statutory interpretation; limited deference to agency statutory interpretations)
Jones v. Howell, 827 So. 2d 691 (Miss. 2002) (overview of Medicaid pharmacist/provider reimbursement process)
Div. of Medicaid v. Miss. Indep. Pharmacies Ass’n, 20 So. 3d 1236 (Miss. 2009) (agency interpretations may be overturned if plainly erroneous or inconsistent with underlying rules)