The Mississippi Methodist Hospital and Rehabilitation Center, Inc. d/b/a Methodist Specialty Care Center v. Mississippi Division of Medicaid and Drew L. Snyder, in his Official Capacity as Executive Director of the Mississippi Division of Medicaid, 319 So.3d 1049

Background

Methodist Specialty Care Center (Specialty) is a hospital-based nursing facility owned by Mississippi Methodist Hospital and Rehabilitation Center (Methodist); Medicare treats Specialty as a hospital cost center, but Mississippi Medicaid treats hospitals and nursing facilities as separate providers that file separate cost reports.
For 2014–15 Methodist paid a hospital Medicaid assessment; Specialty included an allocated portion of that hospital assessment ($539,681) on its Medicaid nursing‑facility cost report using Medicare step‑down allocations.
The Division of Medicaid (DOM) disallowed that allocation on Specialty’s Medicaid cost report after a desk review; Specialty appealed to an administrative hearing officer, then to chancery court; both upheld the DOM’s disallowance.
The State Plan (4.19‑D) expressly lists the nursing‑facility Medicaid assessment as an allowable cost for nursing facilities and lists the hospital assessment as an allowable cost only for hospitals; the Plan also provides Medicaid rules control over CMS PRM where conflicts exist.
The Mississippi Supreme Court affirmed: because Specialty did not incur Methodist’s hospital assessment and State Plan treats providers separately, the hospital assessment is not an allowable nursing‑facility cost; the Court also announced it will no longer defer to agency interpretations of their own rules and will review such interpretations de novo.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Allowability of hospital assessment on Specialty’s Medicaid cost report	Allocation proper — Medicare PRM allows hospitals to allocate A&G costs (including hospital assessment) to cost centers; Medicaid follows Medicare accounting	State Plan and Medicaid statutes treat hospitals and nursing facilities as separate providers; only costs incurred by the provider are allowable	Held: Disallowed — hospital assessment not an allowable cost for Specialty under the State Plan
Whether Specialty patients receive a benefit (reasonable & necessary)	Indirect benefit: assessment funds the Medicaid pool, UPL/DSH payments flow to Methodist and into a shared operating account that benefits Specialty	No direct benefit to Specialty residents; cost not incurred by the nursing facility itself	Held: DOM’s finding that Specialty patients did not receive the requisite benefit was supported by substantial evidence; cost not reasonable/necessary for nursing‑facility operations
Netting (offsetting allocation against Methodist reimbursement)	Netting not appropriate	If allocation were proper, reimbursements should be netted	Held: Not reached/substantively decided (court affirmed DOM and chancery court and declined to address netting)
Retroactivity / APA compliance (DOM’s change in enforcement)	DOM changed practice retroactively and without APA notice; prior DOM practice had allowed the allocation	DOM: State Plan never allowed hospital assessment on nursing‑facility reports; prior inclusions were oversight; agency may correct legal mistakes	Held: Rejected — DOM’s action applied State Plan’s plain language; not arbitrary retroactive rule‑making and no APA violation shown

Key Cases Cited

Cent. Miss. Med. Ctr. v. Miss. Div. of Medicaid, 294 So. 3d 1121 (Miss. 2020) (standard for reviewing agency orders and discussion of deference)
Miss. Div. of Medicaid v. Windsor Place Nursing Ctr., Inc., 296 So. 3d 68 (Miss. 2020) (agency review and deference to agency legal interpretations)
King v. Miss. Military Dep’t, 245 So. 3d 404 (Miss. 2018) (limits on agency statutory interpretation)
Dixon v. United States, 381 U.S. 68 (1965) (agencies may correct mistakes of law)
Miss. Valley Gas Co. v. Fed. Energy Reg. Comm’n, 659 F.2d 488 (5th Cir. 1981) (agency must explain departures from precedent)
Beverly Enters. v. Miss. Div. of Medicaid, 808 So. 2d 939 (Miss. 2002) (definition of arbitrary or capricious agency action)
Adams v. Miss. State Oil & Gas Bd., 139 So. 3d 58 (Miss. 2014) (standards cited for agency review)