Shaffer v. Nebraska Dept. of Health & Human Servs. ( 2014 )


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  •     Nebraska Advance Sheets
    740	289 NEBRASKA REPORTS
    she testified that she would have sought veterinary care if D.J.
    became sick. Van Kleek alone exercised control over D.J.’s
    position relative to the outside world. That she did not breach
    a duty of care by, for example, carelessly leaving the gate open
    or bringing D.J. into “the public domain where third parties
    reside,”35 does not mean that she owed no duty.
    CONCLUSION
    Van Kleek was an insured under the policy because she
    was “legally responsible” for the Chapmans’ dog. As an
    insured, the unambiguous terms of the policy exclude cover-
    age of her injury. Accordingly, Farmers is entitled to sum-
    mary judgment.
    Affirmed.
    35
    Brief for appellant at 17.
    Delores Shaffer, as Guardian and next friend of
    Brian Shaffer, an incapacitated person, appellee, v.
    Nebraska Department of Health and Human
    Services and Vivianne M. Chaumont, director,
    Division of Medicaid and Long-Term Care,
    appellees, and Coventry H ealth Care
    of Nebraska, I nc., appellant.
    ___ N.W.2d ___
    Filed December 19, 2014.   No. S-14-165.
    1.	 Administrative Law: Final Orders: Appeal and Error. A judgment or
    final order rendered by a district court in a judicial review pursuant to the
    Administrative Procedure Act may be reversed, vacated, or modified by an appel-
    late court for errors appearing on the record.
    2.	 Administrative Law: Judgments: Appeal and Error. When reviewing an
    order of a district court under the Administrative Procedure Act for errors
    appearing on the record, the inquiry is whether the decision conforms to the
    law, is supported by competent evidence, and is not arbitrary, capricious,
    or unreasonable.
    3.	 Judgments: Appeal and Error. Whether a decision conforms to law is by defi-
    nition a question of law, in connection with which an appellate court reaches a
    conclusion independent of that reached by the lower court.
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    4.	 Administrative Law: Statutes: Appeal and Error. The meaning and interpreta-
    tion of statutes and regulations are questions of law for which an appellate court
    has an obligation to reach an independent conclusion irrespective of the decision
    made by the court below.
    5.	 Judgments: Jurisdiction: Appeal and Error. When a jurisdictional question
    does not involve a factual dispute, its determination is a matter of law, which
    requires an appellate court to reach a conclusion independent of the decisions
    made by the lower court.
    6.	 Actions: Parties: Standing. To have standing, a litigant must have a legal or
    equitable right, title, or interest in the subject matter of the controversy.
    7.	 Parties: Judgments: Appeal and Error. An appeal is generally available only
    to persons who were parties to the case below, although in a proper case a non-
    party may be sufficiently interested in a judgment to permit him or her to take an
    appeal from it.
    8.	 Parties: Jurisdiction: Waiver. The presence of necessary parties to a suit is a
    jurisdictional matter that cannot be waived by the parties; it is the duty of the
    plaintiff to join all persons who have or claim any interest that would be affected
    by the judgment.
    9.	 Administrative Law: Words and Phrases. An administrative agency is a neutral
    factfinding body when it is neither an adversary nor an advocate of a party.
    10.	 Administrative Law: Parties. When an administrative agency acts as the pri-
    mary civil enforcement agency, it is more than a neutral factfinding body.
    11.	 ____: ____. An administrative agency that is charged with the responsibility of
    protecting the public interest, as distinguished from determining the rights of
    two or more individuals in a dispute before such agency, is more than a neutral
    factfinding body.
    Appeal from the District Court for Lancaster County: Paul
    D. Merritt, Jr., Judge. Vacated and dismissed.
    Thomas J. Kenny, Kathryn E. Jones, and Edward M. Fox II,
    of Kutak Rock, L.L.P., for appellant.
    Alan E. Peterson and Thomas J. O’Neill for appellee Delores
    Shaffer.
    On brief, Douglas J. Peterson, of Keating, O’Gara, Nedved
    & Peter, L.L.O., for appellee Delores Shaffer.
    Heavican, C.J., Wright, Connolly, Stephan, McCormack,
    and Cassel, JJ.
    Stephan, J.
    This is an appeal from an order of the district court for
    Lancaster County which reversed a determination by the
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    Nebraska Department of Health and Human Services (the
    Department) that Brian Shaffer was ineligible for certain
    Medicaid benefits. The appellant, Coventry Health Care of
    Nebraska, Inc. (Coventry), participated in the administra-
    tive proceedings and advocated the determination eventually
    reached by the Department, but it was not named as a party in
    the appeal to the district court. Coventry contends that it was
    a necessary party to the district court appeal and that because
    it was not joined, the district court was without jurisdiction to
    reverse the Department’s determination in its favor. We con-
    clude that Coventry has standing to appeal and was a necessary
    party in the appeal to the district court.
    I. BACKGROUND
    Shaffer is a 33-year-old man with severe autism and chemi-
    cal sensitivities. He has many environmental, food, and drug
    allergies. He resides with his mother, Delores Shaffer, who is a
    licensed practical nurse.
    Coventry is a managed care organization (MCO) which
    contracts with the Department to provide Medicaid services.1
    Coventry receives a capitation payment, which is a fee “paid
    by Medicaid to an MCO on a monthly basis for each client
    enrolled with the physical health or behavioral health plan. The
    fee covers all services required to be provided by the MCO to
    the client, regardless of whether the client receives services or
    not.”2 This type of care program is different from a fee-for-
    service program in that Coventry receives from the Department
    a set rate for each person enrolled in its program.3 Coventry
    then provides the requested services.4
    Until October 2011, Delores was paid to provide 18 hours
    a day of private duty nursing (PDN) care to Shaffer. This pay-
    ment came from a Medicaid provider other than Coventry. In
    October 2011, Shaffer’s Medicaid coverage was then trans-
    ferred to Coventry. In April 2012, Delores asked Coventry
    1
    See 471 Neb. Admin. Code App. 471-000-122 (2010).
    2
    482 Neb. Admin. Code, ch. 1, § 002 (2013).
    3
    Id.
    4
    482 Neb. Admin. Code, ch. 4, § 001 (2012).
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    to approve her to continue to provide PDN to Shaffer for 18
    hours each day. Coventry denied this request after determin-
    ing the nursing services were not medically necessary. Shaffer
    filed a first-level appeal with Coventry, which was denied.
    Shaffer then filed a second-level appeal with Coventry, which
    was also denied. Shaffer then requested a State fair hearing
    with the Department pursuant to 482 Neb. Admin. Code, ch. 7,
    § 003 (2010).
    The fair hearing was held on January 22, 2013, before a
    hearing officer. Shaffer was represented by legal counsel.
    Teresa Engel, Coventry’s supervisor of the appeals department,
    appeared for Coventry. At the commencement of the hearing,
    the hearing officer asked the “parties” to enter into a stipula-
    tion regarding the redaction of certain information from the
    exhibits which were to be offered. Engel and Shaffer’s counsel
    agreed to the stipulation, which was made a part of the record.
    Engel also acknowledged that Coventry had received copies of
    all exhibits “from the State.”
    The hearing officer noted it was customary to “have the
    Department or its representative or contractor in this case,
    Coventry, put on [its] testimonial evidence first.” Shaffer’s
    counsel indicated he had no objection to this procedure, and
    both Engel and Shaffer’s counsel declined the hearing officer’s
    invitation to make opening statements. Engel was then sworn
    as Coventry’s first witness. Engel presented narrative testi-
    mony explaining Coventry’s reasons for denying the requested
    Medicaid benefits and describing the first- and second-level
    appeal determinations made by Coventry. She was cross-­
    examined by Shaffer’s counsel, after which she stated Coventry
    was resting its case but “may . . . pose additional questions at
    the end.”
    Shaffer’s counsel then called both Delores and Shaffer’s
    allergist. Both testified that in their opinion, continuation of
    the PDN care which Delores had been providing to Shaffer
    was medically necessary. The hearing officer permitted both
    Engel and Dr. Debra Esser, Coventry’s vice president of medi-
    cal affairs, to cross-examine both witnesses. On behalf of
    Coventry, Engel made a relevancy objection during Delores’
    direct examination, which the hearing officer overruled.
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    After Delores and Shaffer’s allergist concluded their testi-
    mony, Esser was sworn and testified on behalf of Coventry,
    apparently as a rebuttal witness. Esser, a board-certified family
    practice physician, stated in response to questions posed by
    Engel that the PDN services for Shaffer were not medically
    necessary. She was cross-examined by Shaffer’s counsel.
    The hearing officer asked both Engel and Shaffer’s coun-
    sel if they wished to offer any additional evidence, and when
    they responded in the negative, the hearing officer announced,
    “[b]oth parties have rested.” Shaffer’s counsel made a closing
    statement, to which Engel responded.
    On April 9, 2013, Vivianne M. Chaumont, who was then the
    director of the Division of Medicaid & Long-Term Care of the
    Department, entered an order based upon the record made at
    the State fair hearing. The order noted that Engel and Esser had
    appeared at the fair hearing on behalf of Coventry, that “[t]he
    parties” had entered into a stipulation regarding exhibits, and
    that “[a]ll parties were provided proper notice of the adminis-
    trative hearing.” After discussing the evidence adduced at the
    fair hearing, the order concluded the PDN services at issue
    were not medically necessary.
    Delores, as Shaffer’s guardian and next friend, filed a peti-
    tion in the district court for Lancaster County seeking judicial
    review of this order pursuant to the Administrative Procedure
    Act (APA).5 The petition named the Department and Chaumont
    in her official capacity as respondents, but did not name
    Coventry. The district court conducted a de novo review of the
    administrative record and reversed the order of the Department,
    finding the PDN services which Delores provided to Shaffer
    were medically necessary, because there was a significant
    probability that Shaffer could develop medical complications
    “virtually immediately” without such services.
    The Department did not appeal, but Coventry did. We moved
    the appeal to our docket on our own motion pursuant to our
    5
    See Neb. Rev. Stat. §§ 84-901 to 84-920 (Reissue 2014).
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    statutory authority to regulate the caseloads of the appellate
    courts of this state.6
    II. ASSIGNMENTS OF ERROR
    Coventry assigns, consolidated and restated, that the district
    court erred in (1) failing to find Coventry was a necessary
    party to the district court appeal; (2) failing to join Coventry
    as a necessary party, because the Department was statutorily
    precluded from being a party; and (3) finding the PDN services
    were medically necessary.
    III. STANDARD OF REVIEW
    [1-3] A judgment or final order rendered by a district court
    in a judicial review pursuant to the APA may be reversed,
    vacated, or modified by an appellate court for errors appear-
    ing on the record.7 When reviewing an order of a district court
    under the APA for errors appearing on the record, the inquiry
    is whether the decision conforms to the law, is supported by
    competent evidence, and is not arbitrary, capricious, or unrea-
    sonable.8 Whether a decision conforms to law is by defini-
    tion a question of law, in connection with which an appellate
    court reaches a conclusion independent of that reached by the
    lower court.9
    [4] The meaning and interpretation of statutes and regula-
    tions are questions of law for which an appellate court as an
    obligation to reach an independent conclusion irrespective of
    the decision made by the court below.10
    [5] When a jurisdictional question does not involve a
    factual dispute, its determination is a matter of law, which
    6
    Neb. Rev. Stat. § 24-1106(3) (Reissue 2008).
    7
    Holmes v. State, 
    275 Neb. 211
    , 
    745 N.W.2d 578
    (2008); Stejskal v.
    Department of Admin. Servs., 
    266 Neb. 346
    , 
    665 N.W.2d 576
    (2003).
    8
    Id.
    9
    
    Id. 10 Betterman
    v. Department of Motor Vehicles, 
    273 Neb. 178
    , 
    728 N.W.2d 570
    (2007).
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    requires an appellate court to reach a conclusion independent
    of the decisions made by the lower court.11
    IV. ANALYSIS
    1. Coventry’s Standing
    to A ppeal
    [6] A threshold issue in this case is whether Coventry has
    standing to bring this appeal from the order of the district
    court, despite the fact that it did not participate in the district
    court proceedings. The APA provides that an “aggrieved party”
    may seek appellate review of a district court’s order or judg-
    ment in an appeal from an administrative agency.12 Because
    the phrase “aggrieved party” is not defined by the APA, we
    have addressed the issue as a matter of standing.13 To have
    standing, a litigant must have a legal or equitable right, title,
    or interest in the subject matter of the controversy.14 The “party
    aggrieved” concept must be given a practical rather than hyper-
    technical meaning.15
    [7] An appeal is generally available only to persons who
    were parties to the case below, although in a proper case a
    nonparty may be sufficiently interested in a judgment to per-
    mit him or her to take an appeal from it.16 Here, Coventry
    successfully contested Shaffer’s claim at the fair hearing.
    Coventry contends it has a financial interest in the outcome
    of this litigation and that as an MCO, it was a necessary party
    to the APA appeal under federal Medicaid regulations.17 The
    district court’s order acknowledges that “[Shaffer’s] cover-
    age with [Coventry] became effective on October 1, 2011,”
    11
    
    Id. 12 §
    84-918(1).
    13
    See, In re Application of Metropolitan Util. Dist., 
    270 Neb. 494
    , 
    704 N.W.2d 237
    (2005); Stoneman v. United Neb. Bank, 
    254 Neb. 477
    , 
    577 N.W.2d 271
    (1998).
    14
    See In re Application of Metropolitan Util. Dist., supra note 13.
    15
    
    Id. 16 Rozmus
    v. Rozmus, 
    257 Neb. 142
    , 
    595 N.W.2d 893
    (1999).
    17
    See 42 C.F.R. § 438.408(f)(2) (2013).
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    and it utilized the definition of “medical necessity” set out in
    Coventry’s “Handbook of Covered Services” in reaching its
    determination. We are satisfied that Coventry has alleged a
    sufficient legal right and interest in the matter in controversy
    to confer standing to appeal from the final order of the dis-
    trict court.
    2. Necessary Parties
    [8] Generally, the presence of necessary parties to a suit is a
    jurisdictional matter that cannot be waived by the parties; it is
    the duty of the plaintiff to join all persons who have or claim
    any interest that would be affected by the judgment.18 Here,
    Shaffer’s petition for review filed in the district court named
    only the Department and the Medicaid director as respondents.
    Coventry contends there was a defect of parties before the dis-
    trict court for two reasons: (1) the Department was not a proper
    party to the appeal and (2) Coventry was a necessary party that
    was not joined.
    Our resolution of both contentions begins with the provi-
    sion of the APA which requires that in proceedings for judicial
    review of a final decision by an administrative agency in a
    contested case,
    [a]ll parties of record shall be made parties to the pro-
    ceedings for review. If an agency’s only role in a con-
    tested case is to act as a neutral factfinding body, the
    agency shall not be a party of record. In all other cases,
    the agency shall be a party of record.19
    (a) The Department
    [9-11] Coventry contends that the Department was not a
    proper party to the district court appeal because it served
    only as a “neutral factfinding body” in the contested case.
    Recently, in McDougle v. State ex rel. Bruning,20 we summa-
    rized the principles which guide the determination of whether
    an administrative agency acts solely as a neutral factfinding
    18
    Pestal v. Malone, 
    275 Neb. 891
    , 
    750 N.W.2d 350
    (2008).
    19
    § 84-917(2)(a)(i).
    20
    McDougle v. State ex rel. Bruning, ante p. 19, 
    853 N.W.2d 159
    (2014).
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    body, or serves a broader role. An administrative agency is a
    neutral factfinding body when it is neither an adversary nor
    an advocate of a party.21 In contrast, when an administrative
    agency acts as the primary civil enforcement agency, it is
    more than a neutral factfinding body.22 Also, an administrative
    agency that is charged with the responsibility of protecting the
    public interest, as distinguished from determining the rights
    of two or more individuals in a dispute before such agency, is
    more than a neutral factfinding body.23
    We have not previously addressed the nature of the
    Department’s role in a contested case involving eligibility for
    Medicaid benefits. We have held that in other contexts, the
    Department or its predecessor served in a broader role and was
    therefore a “party of record” in judicial review proceedings
    under the APA. McDougle involved a proceeding to revoke
    the license of a mental health practitioner and alcohol and
    drug counselor. We held the Department’s Division of Public
    Health acted as more than a neutral factfinder, because it was
    the primary civil enforcement agency for credentialing viola-
    tions pertaining to the health care professions and possessed
    broad statutory powers to protect the public and regulate the
    professions. Similarly, in Beatrice Manor v. Department of
    Health,24 we held that the Department of Health was a neces-
    sary party in proceedings to review its determination, through
    the Nebraska Health Care Certificate of Need Appeal Panel, to
    deny a health care facility permission to add more beds, given
    its responsibility for protecting the public interest as distin-
    guished from determining the rights of two or more individ­
    uals in a dispute before the agency.
    Applying these principles, we conclude that the Department
    was a party of record in this case. The Department has broad
    regulatory power, oversight of the Medicaid program, and
    21
    
    Id. 22 Id.
    23
    
    Id. 24 Beatrice
    Manor v. Department of Health, 
    219 Neb. 141
    , 
    362 N.W.2d 45
          (1985).
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    a stake in the contract with Coventry. It is charged with
    administering the Nebraska Medicaid program.25 The pur-
    pose of the program is to provide medical assistance to eli-
    gible residents.26 Pursuant to this authority, the Department is
    authorized to “adopt and promulgate rules and regulations.”27
    This is comparable to the Division of Public Health in
    McDougle, which also had broad powers to establish rules
    and regulations.28
    Additionally, the Department is authorized to provide medi-
    cal assistance for eligible recipients by utilizing managed
    care contracts.29 The Department is responsible for processing
    and determining the eligibility of each applicant for medical
    assistance.30 It is also responsible for establishing “premiums,
    copayments, and deductibles,” as well as limits on those serv­
    ices.31 Clearly, it is charged with protecting the public interest
    with respect to Medicaid, which it accomplishes in part by con-
    tracting with and paying MCO’s such as Coventry. Because of
    the Department’s broad authority and responsibility for admin-
    istering the Medicaid program in Nebraska, its role at a State
    fair hearing is far more expansive than simply adjudicating
    disputes between parties regarding Medicaid eligibility. Thus,
    in this case, it was a “party of record” within the meaning of
    § 84-917(2)(a)(i).
    (b) Coventry
    Whether Coventry was a necessary party to the district
    court appeal is likewise dependent upon whether it was a
    “party of record” at the State fair hearing.32 Coventry contends
    that it was not a “party of record,” but should have been. We
    25
    Neb. Rev. Stat. § 68-908(1) (Cum. Supp. 2014).
    26
    Neb. Rev. Stat. § 68-905 (Reissue 2009).
    27
    § 68-908(2)(b).
    28
    McDougle, supra note 20.
    29
    Neb. Rev. Stat. § 68-910(2) (Reissue 2009).
    30
    Neb. Rev. Stat. § 68-914(1) (Cum. Supp. 2014).
    31
    Neb. Rev. Stat. § 68-912(1)(a) (Cum. Supp. 2014).
    32
    See § 84-917(2)(a)(i).
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    c­ onclude that the question of whether Coventry was a “party
    of record” at the State fair hearing and thus a necessary party
    in the district court appeal is a jurisdictional issue which
    does not involve a factual dispute; thus, we must resolve the
    question independently on the basis of the record and appli-
    cable law.33
    The bill of exceptions from the State fair hearing proceed-
    ings does not specifically identify any “parties of record.”
    While this creates some ambiguity on the point, the failure
    of the Department to make this important determination on
    the record in the administrative proceeding does not resolve
    the jurisdictional issue. As we noted in McDougle,34 there is
    no statutory directive that the phrase “parties of record” for
    purposes of judicial review of an administrative determination
    is limited to those parties named in the underlying administra-
    tive proceeding.
    This position is consistent with holdings by other state
    courts. In an Oklahoma case, the court found that even though
    two entities were not named and joined as parties in the caption
    of the administrative action, they both appeared, participated,
    and were entitled by law to participate; thus, they were parties
    of record and failure to join them on appeal was a jurisdic-
    tional defect.35 Similarly, a Washington court defined a party of
    record as a person “‘to whom the agency action is specifically
    directed,’” or a person “‘named as a party to the agency pro-
    ceeding or allowed to intervene or participate as a party in the
    agency proceeding.’”36
    For two principal reasons, we conclude Coventry was a
    “party of record” at the State fair hearing. First, as an MCO,
    Coventry was required by federal law to be a party to the State
    fair hearing. Because Nebraska has elected to participate in the
    33
    See McDougle, supra note 20.
    34
    
    Id. 35 Oklahoma
    Foundation v. Dept. of Central, 
    180 P.3d 1
    (Okla. Civ. App.
    2007).
    36
    Litowitz v. Growth Management Bd., 
    93 Wash. App. 66
    , 69, 
    966 P.2d 422
    , 423 (1998) (emphasis supplied). See Wash. Rev. Code Ann.
    § 34.05.010(12)(a) and (b) (West Cum. Supp. 2015).
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    federal Medicaid program, it must comply with standards and
    requirements imposed by federal statutes and regulations.37 A
    federal Medicaid regulation governing resolution of grievances
    and appeals specifically provides: “The parties to the State fair
    hearing include the MCO . . . as well as the enrollee and his or
    her representative . . . .”38
    Second, it is clear from the administrative record that
    Coventry participated in the State fair hearing and was treated
    as a party by the hearing officer. Pursuant to § 84-909, the
    Department has adopted rules and regulations governing the
    appeals process in Medicaid cases.39 Pursuant to these regu-
    lations, a Medicaid client may request a State fair hearing
    after denial or limitation of an authorization,40 as Shaffer did
    in this case. The parties to the fair hearing include “the peti-
    tioner or person by whom a contested case is brought and the
    Department or other decision maker whose decision is subject
    to appeal or a person or party granted leave to intervene.”41
    The “decision . . . subject to appeal” was Coventry’s deci-
    sion to deny Shaffer’s request for coverage of PDN care to be
    provided by Delores. Coventry appeared at the fair hearing to
    explain and defend its decision. Its representatives presented
    evidence, cross-examined witnesses, entered into stipulations,
    and presented arguments. At the beginning and conclusion
    of the hearing, the hearing officer referred to Shaffer and
    Coventry as the “parties.”
    We conclude as a matter of law that Coventry was a “party
    of record” at the State fair hearing and therefore a necessary
    party pursuant to § 84-917(2)(a)(i) in the subsequent appeal to
    the district court. Coventry prevailed at the administrative pro-
    ceeding, but was not given an opportunity to participate in or
    be heard in the district court appeal that resulted in a reversal
    37
    See, Thorson v. Nebraska Dept. of Health & Human Servs., 
    274 Neb. 322
    ,
    
    740 N.W.2d 27
    (2007); Neb. Rev. Stat. § 68-906 (Cum. Supp. 2014).
    38
    42 C.F.R. § 438.408(f)(2).
    39
    465 Neb. Admin. Code, ch. 6 (1995); 482 Neb. Admin. Code, ch. 7 (2010).
    40
    482 Neb. Admin. Code § 7-003(2).
    41
    465 Neb. Admin. Code § 6-004.02.
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    of the administrative decision. Because the presence of a nec-
    essary party is jurisdictional, the failure to make Coventry a
    party to the appeal deprived the district court of jurisdiction.
    In light of this determination, we are required to vacate the
    judgment of the district court and therefore do not address
    Coventry’s third assignment of error.
    V. CONCLUSION
    For the foregoing reasons, we vacate the order of the district
    court and dismiss the appeal.
    Vacated and dismissed.
    Miller-Lerman, J., not participating.