               IN THE SUPREME COURT OF THE STATE OF IDAHO

                               Docket No. 34879/34880/34881

KOOTENAI MEDICAL CENTER (RE:           )
TERESA K.),                            )
                                       )
     Petitioner-Respondent,            )
                                       )                    Coeur d’Alene, April 2009 Term
v.                                     )
                                       )                    2009 Opinion No. 108
IDAHO DEPARTMENT OF HEALTH AND )
WELFARE,                               )                    Filed: August 24, 2009
                                       )
     Respondent-Appellant.             )                    Stephen Kenyon, Clerk
______________________________________ )
                                       )
KOOTENAI MEDICAL CENTER (RE:           )
JENNIFER G.),                          )
                                       )
     Petitioner-Respondent,            )
                                       )
v.                                     )
                                       )
IDAHO DEPARTMENT OF HEALTH AND )
WELFARE,                               )
                                       )
     Respondent-Appellant.             )
______________________________________ )
                                       )
KOOTENAI MEDICAL CENTER (RE:           )
JOSHUA M.),                            )
                                       )
     Petitioner-Respondent,            )
                                       )
v.                                     )
                                       )
IDAHO DEPARTMENT OF HEALTH AND )
WELFARE,                               )
                                       )
     Respondent-Appellant.             )

     Appeal from the District Court of the First Judicial District of the State of Idaho,
     Kootenai County. Honorable John T. Mitchell, District Judge.

     The decision of the district court is reversed.



                                               1
       Honorable Lawrence G. Wasden, Attorney General, Boise, for appellant.
       Whitaker Riggs argued.

       Paine Hamblen, Coeur d‟Alene, for respondents. Michael Hague argued.
             _______________________________________________

HORTON, Justice

       This appeal consists of three consolidated cases arising from petitions for judicial review
of orders issued by Appellant Idaho Department of Health and Welfare (the Department).
Respondent Kootenai Medical Center (KMC), through its Northern Idaho Behavioral Health
Unit (NIBH), provided inpatient psychiatric care under Idaho‟s Medicaid program.              The
Department denied KMC at least some portion of Medicaid reimbursement in all three cases.
KMC appealed the Department‟s reimbursement decisions and filed petitions for judicial review
with the district court. The district court reversed the decisions of the Department and ordered
that the Department reimburse KMC in full in all three cases. We reverse the decision of the
district court and decline to award attorney fees on appeal.
                    I. FACTUAL AND PROCEDURAL BACKGROUND
       In each of these consolidated cases, KMC provided inpatient psychiatric treatment to an
adolescent patient and KMC applied for Medicaid reimbursement from the Department.
Because none of the patients were admitted to the Medicaid program at the time of their
admission to NIBH, the Department retrospectively reviewed each case for medical necessity
after the patients had been discharged. The Department contracted with Qualis Health (Qualis),
a Quality Improvement Organization (QIO), to perform retrospective reviews in each of the
cases. Dr. Robert Lehman, a consultant to Qualis, reviewed each case. Dr. Lehman had
practiced medicine as a pediatrician for over 20 years. Dr. Lehman recommended only partial
reimbursement to KMC in each case.           KMC asked that Qualis reconsider Dr. Lehman‟s
reimbursement decisions. Qualis hired an unidentified peer review psychiatrist, board certified
in psychiatry, to review Dr. Lehman‟s decisions. The peer review psychiatrist agreed with Dr.
Lehman‟s reimbursement decisions. Following administrative hearings, in each case the hearing
officer upheld Qualis‟s reimbursement decisions. Upon petition for review, the Department
Director affirmed each of the hearing officer‟s decisions. The pertinent factual and procedural
details as to each case are as follows:


                                                 2
       On August 19, 2005, J.M., a 16 year-old male, attempted suicide by cutting his wrists.
On August 20, 2005, J.M. was admitted to NIBH for inpatient psychiatric care. J.M. was
evaluated and treated at NIBH until his discharge on August 31, 2005. KMC applied to the
Department for reimbursement for the entire length of J.M.‟s stay. On March 6, 2006, Qualis
approved reimbursement for the period of August 20, 2005 through August 24, 2005, but denied
reimbursement for the period of August 25, 2005 through August 31, 2005. KMC requested
reconsideration of the decision, and on March 23, 2006, Qualis upheld its initial decision. The
hearing officer concluded that KMC did not establish by a preponderance of the evidence that
the medical chart sufficiently documented the medical necessity of inpatient psychiatric care.
       On December 23, 2005, J.G., a fourteen year-old female, was admitted to NIBH.
Immediately prior to her admission, J.G. had been in a juvenile detention center and had made
several suicidal statements. J.G. also cut herself while incarcerated. NIBH treated J.G. from
December 23, 2005 until she was discharged on January 4, 2006.              KMC applied to the
Department for reimbursement for the entire length of J.G.‟s stay.              Qualis approved
reimbursement for the period of December 23, 2005 through December 28, 2005, but denied
reimbursement for the period of December 29, 2005 through January 4, 2006. KMC requested
reconsideration of the decision, and on May 25, 2006, Qualis upheld its initial decision. The
hearing officer concluded that KMC did not establish by a preponderance of the evidence that
the medical chart sufficiently documented the medical necessity of inpatient psychiatric care.
       On November 6, 2005, T.K., a nineteen year-old female was admitted to NIBH. T.K. had
a history of mental health problems and was previously hospitalized in a youth residential
program for approximately two years. T.K. was brought to NIBH by the police from a women‟s
shelter. NIBH treated T.K. from November 6, 2005 through December 14, 2005. On November
19, 2005 T.K. was committed to the custody of the Department.                 KMC applied for
reimbursement for the entire length of T.K.‟s stay at NIBH.             Qualis Health approved
reimbursement for the period of November 6, 2005 through November 8, 2005, but denied
reimbursement for the period of November 9, 2005 through December 14, 2005. Subsequently,
the Department reimbursed KMC for the period of November 19, 2005 through December 12,
2005 through a non-Medicaid fund. KMC requested reconsideration of the decision, and Qualis
Health upheld its initial decision. On appeal, the hearing officer found that the medical record




                                                3
did not justify inpatient hospitalization after November 9, 2005. The Department affirmed the
hearing officer‟s decision.
        KMC filed petitions for judicial review in each case. The district court concluded that
KMC had a due process right to cross-examine the reviewing psychiatrist and, because KMC
was denied this right, ordered that the comments of the reviewer be stricken from the record.
The district court further determined that Dr. Lehman‟s opinions be stricken as “he had no idea
what other less restrictive facilities there are in this area.” Finally, the district court reversed the
decision of the Director of the Department and ordered that the Department pay KMC‟s claims
“in full.” The Department timely appealed to this Court.
                                II. STANDARD OF REVIEW
        When reviewing a decision of the district court acting in its appellate capacity, we
directly review the district court‟s decision. Rammell v. State, Dep’t of Agric., ___ Idaho ___,
210 P.3d 523, 526 (2009) (citing Losser v. Bradstreet, 145 Idaho 670, 672, 183 P.3d 758, 760
(2008)). The standard of judicial review of an agency action is prescribed by statute. Under the
Idaho Administrative Procedures Act, a reviewing court is required to affirm the agency‟s
decision unless its findings, inferences, conclusions, or decisions are: (a) in violation of
constitutional or statutory provisions; (b) in excess of the statutory authority of the agency; (c)
made upon unlawful procedure; (d) not supported by substantial evidence on the record as a
whole; or (e) arbitrary, capricious, or an abuse of discretion. I.C. § 67-5279(3). Accordingly,
this Court defers to the agency‟s findings of fact unless they are clearly erroneous. Lane Ranch
P’ship. v. City of Sun Valley, 144 Idaho 584, 588, 166 P.3d 374, 378 (2007) (citing Friends of
Farm to Market v. Valley County, 137 Idaho 192, 46 P.3d 9 (2002)). Further, the agency
decision must prejudice a substantial right of the Appellant. I.C. § 67-5279(4); Price v. Payette
County Bd. of County Comm’rs, 131 Idaho 426, 429, 958 P.2d 583, 586 (1998).
        “Due process issues are generally questions of law, and this Court exercises free review
over questions of law.” Neighbors for a Healthy Gold Fork v. Valley County, 145 Idaho 121,
127, 176 P.3d 126, 132 (2007) (citing Cowan v. Bd. of Comm’rs of Fremont County, 143 Idaho
501, 510, 148 P.3d 1247, 1256 (2006)).
                                           III. ANALYSIS
        The Medicaid Act, Title XIX of the Social Security Act (the Act), is a cooperative
federal-state program designed to allow states to receive matching funds from the federal



                                                   4
government to finance medical services to certain low-income persons. Schweiker v. Gray
Panthers, 453 U.S. 34, 36 (1981). States may choose to participate in the Medicaid program by
submitting a plan for medical assistance that is approved by the federal government. 42 U.S.C. §
1396a. Once a state voluntarily elects to participate in the program, it must comply with the
requirements imposed by the Act and applicable regulations. McCoy v. Dept. of Health and
Welfare, 127 Idaho 792, 794, 907 P.2d 110, 112 (1995) (citing Alexander v. Choate, 469 U.S.
287, 289 n.1 (1985)). The Act gives participating states considerable flexibility in determining
the scope of coverage they must provide, although states must provide care to needy individuals
in at least seven general categories of medical services, including inpatient hospital services. Id.
(citing Hern v. Beye, 57 F.3d 906, 910 (10th Cir. 1995)).
            In Idaho, Medicaid services include medically necessary inpatient psychiatric hospital
services for individuals under age twenty-one, such as those provided by KMC through NIBH.
IDAPA 16.03.09.079.1             Federal law does not appear to require states to provide inpatient
psychiatric treatment in their Medicaid programs. 42 U.S.C. § 1396d(r); 42 C.F.R. § 441.56(c).
However, even when a state elects to provide an optional service, that service becomes part of
the state Medicaid plan and is subject to the requirements of federal law. Tallahassee Mem.
Reg’l Med. Ctr. v. Cook, 109 F.3d 693, 698 (11th Cir. 1997) (citing Sobky v. Smoley, 855
F.Supp. 1123, 1127 (E.D. Cal. 1994)).                   Idaho hospitals must therefore provide inpatient
psychiatric care to their patients as long as medical necessity exists. Id. Once the federal
government approves its plan, the State is entitled to federal reimbursement for a portion of the
costs of administering a Medicaid program, and for a portion of payments to health care
providers. 42 U.S.C. § 1396b(a). The Department reimburses providers such as KMC for the
recipient‟s admission and length of stay, subject to preadmission, concurrent, or retrospective
review by the Department or its designee. IDAPA 16.03.09.079.08; 16.03.09.080.02. Pursuant
to 42 C.F.R. 431.630, a State plan may provide for the review of Medicaid services through a
contract with a QIO. The Department has contracted with Qualis to serve as its QIO and perform
preadmission, concurrent, and retrospective reviews for inpatient hospital services.
           The Department raises four issues on appeal: (1) whether KMC has standing to assert the
due process rights of its patients; (2) whether the documentation requirement found in IDAPA


1
           All citations in this opinion are to IDAPA rules in effect at the time of the proceedings before the hearing
officer.


                                                           5
16.03.09.079.05 conflicts with the certification requirement found in 42 C.F.R. 441.152; (3)
whether the hearing officer‟s preliminary orders were supported by substantial evidence in the
record; and (4) whether the Department is entitled to an award of attorney fees and costs on
appeal.
   A. The district court erred when it concluded that KMC has standing to assert the due
      process rights of its patients.
          As previously noted, the district court struck from the record the findings and conclusions
of the peer review psychiatrist because KMC did not have the opportunity to cross-examine the
psychiatrist. The Department argues that KMC, as a Medicaid provider, is not entitled to the due
process protections afforded a patient, that the findings and conclusions of the peer review
psychiatrist are admissible under the hearsay rules applicable to administrative hearings, and
federal regulations prevent the disclosure of the identity of the peer review psychiatrist and KMC
is therefore not entitled to cross-examine the peer review psychiatrist. The Department further
argues that a provider‟s right to cross-examine a QIO peer reviewer is not a substantial right. In
response, KMC contends that it has due process rights entitling it to de novo review before the
hearing officer, where it can present evidence and cross-examine any adverse witnesses. In the
instant case, KMC was not able to cross-examine the QIO peer review psychiatrist(s).
             1. KMC does not have third-party standing to assert the due process rights of
                its patients.
          KMC argues that Qualis‟s method of conducting retrospective review in the instant cases
violates 42 C.F.R. § 431.205(d) and the due process protections outlined in Goldberg v. Kelley,
397 U.S. 254 (1970). KMC appropriately focuses on this stage of proceedings, as IDAPA
16.05.03.131 provides that “[t]he hearing officer shall consider only information that was
available to the Department at the time the decision was made” subject to an exception for
“additional relevant information that was not presented to the Department with good cause.” In
the event that the hearing officer finds that there is such additional relevant information, the
hearing officer is required to remand the matter to the Department for further consideration. Id.
In each of these cases, the hearing officer focused solely on the evidence contained in the
patients‟ medical records, as this was the information available to the Department at the time of
the reimbursement decision.       Apart from due process claims predicated upon 42 C.F.R. §
431.205(d), KMC does not assert that the hearing officer erred in applying this regulation, nor




                                                   6
does KMC assert that there was good cause for not providing additional information to the
Department at an earlier time.
       As a threshold matter, before delving into the specific due process violations alleged by
KMC, this Court must examine whether 42 C.F.R. § 431.205(d), requiring that the due process
standards of Goldberg be met, is applicable to KMC.            Code of Federal Regulation, 42 §
431.205(d) establishes the provisions of hearing systems for applicants and recipients and
provides in relevant part that: “The hearing system must meet the due process standards set forth
in Goldberg v. Kelly, 397 U.S. 254 (1970), and any additional standards specified in this
subpart.” The Department challenges the applicability of 42 C.F.R. § 431.205 to the instant
cases because the regulation appears in subsection E of the Act, which applies only to
“applicants” and “recipients,” and not “providers” such as KMC.
       The definitions applicable to the Medicaid program support the Department‟s arguments,
as does the case law. The regulations define “applicant” as:
       An individual whose written application for Medicaid has been submitted to the
       agency determining Medicaid eligibility, but has not received final action. This
       includes an individual (who need not be alive at the time of application) whose
       application is submitted through a representative or a person acting responsibly
       for the individual.”
42 C.F.R. § 400.203. A “recipient” is “an individual who has been determined eligible for
Medicaid.” Id. A “provider” is
       either of the following:
       (1) For the fee-for-service program, any individual or entity furnishing Medicaid
           services under an agreement with the Medicaid agency.
       (2) For the managed care program, any individual or entity that is engaged in the
           delivery of health care services and is legally authorized to do so by the State
           in which it delivers the services.
Id. Here, KMC is engaged in the delivery of health care services and is legally authorized to do
so in Idaho. Thus, KMC falls within the definition of “provider.”
       In Banks v. Sec’y of the Indiana Family and Soc. Services Admin., 997 F.2d 231 (7th Cir.
1993), the court concluded that 42 C.F.R. § 431.205(d) defined the procedural requirements
applicable to individuals seeking or receiving Medicaid benefits, but that its provisions did not
provide for notice and a hearing regarding when a provider‟s claim for reimbursement is denied.
Id. at 243. “Rather, the regulations cover an individual‟s initial and continued eligibility for
Medicaid services-hence use of the terms „applicants‟ and „recipients‟-not provider


                                                7
reimbursement determinations.” Id. (citing 42 C.F.R. § 431.220 and O’Bannon v. Town Court
Nursing Ctr., 447 U.S. 773, 786-87 (1980) (stating “[t]he Government cannot withdraw these
direct [Medicaid] benefits without giving the patients notice and an opportunity for a hearing on
the issue of their eligibility for benefits.”)).       Thus, the court in Banks concluded that the
procedural protections afforded by 42 C.F.R. § 431.205(d) and Goldberg only apply to state
agency denial or withdrawal of Medicaid benefits. Id. The instant cases do not involve the
denial or withdrawal of Medicaid benefits; rather, the issue is whether a Medicaid provider is
entitled to reimbursement for services it has rendered to Medicaid patients.
       KMC argues that it has third-party standing to assert the rights of patients who faced a
loss of services. KMC argues that Singleton v. Wulff, 428 U.S. 106 (1977), is applicable to, and
dispositive of, the instant cases.     However, we conclude that the holding in Singleton is
inapplicable to the instant cases. In Singleton, two Missouri-licensed physicians, acting on
behalf of their patients, challenged a provision in Missouri‟s Medicaid plan excluding abortions
from medical services eligible for Medicaid funding, unless the abortions were “medically
indicated.” Id. at 108-09. The three-judge panel assigned to the case dismissed the action,
finding the physicians lacked standing. Id. at 111. The United States Supreme Court held that
the doctors had standing to assert the rights of their patients because of the closeness of the
doctor-patient relationship; a woman cannot safely secure an abortion without the aid of a
physician, and an impecunious woman cannot easily secure an abortion without the State paying
the physician. Id. at 117. Therefore, the physicians were uniquely qualified to litigate the
constitutionality of the State‟s interference with, or discrimination against a woman‟s
constitutionally protected decision to obtain an abortion. Id. Additionally, the Court found that
“several obstacles” existed which prevented women from asserting their rights, including the
desire to protect their decisions from the publicity of litigation and the inherent time limitation in
which a woman may obtain an abortion. Id. Thus, the Court concluded that it was appropriate to
allow a physician to assert the rights of women patients as against governmental interference
with the abortion decision. Id. at 118.
       The instant cases are distinguishable from Singleton. Unlike the women in Singleton, the
State has not interfered with a constitutionally protected right of these patients. All three patients
received medical care from KMC. Further, because each patient was Medicaid eligible, the
patients were not responsible for paying for the medical services. Under 42 C.F.R. § 447.15, “[a]



                                                   8
State plan must provide that the Medicaid agency must limit participation in the Medicaid
program to providers who accept, as payment in full, the amounts paid by the agency.” Thus,
“[o]nce a health care provider commits to Medicaid assistance for a patient, the provider is
barred from billing the patient for an amount in excess of the State‟s Medicaid disbursement.”
Mallo v. Pub. Health Trust of Dade County, 88 F.Supp.2d 1376, 1387 (S.D.Fla.2000) (footnote
omitted). Simply stated, “[t]he federal Medicaid scheme … gives providers the opportunity to
make a „calculated choice‟ whether to seek reimbursement from Medicaid or from the patient.”
Miller v. Gorski Wladyslaw Estate, 547 F.3d 273, 284 (2008) (interpreting 42 U.S.C. §
1396a(a)(25)(C); 42 C.F.R. §§ 447.15, 447.20(a)).
       KMC argues that the State has interfered with the instant patients‟ rights to have their
Medicaid expenses paid by Medicaid. However, the Department is willing to pay the patients‟
expenses with Medicaid funds; the dispute is the amount of Medicaid funds to which KMC is
entitled. This dispute does not implicate the rights of the patients, who have already received
medical treatment for which they are not required to pay. The patients face no State interference
with their rights, constitutional or otherwise. Thus, we conclude that KMC is not entitled to
claim the benefit of the due process protections afforded to applicants or recipients as set forth in
Goldberg.
       KMC also argues that Pennsylvania Psychiatric Soc. v. Green Spring Health Services,
Inc., 280 F.3d 278 (3d. Cir. 2002), supports its third-party standing argument. In that case, the
plaintiff, Pennsylvania Psychiatric Society, brought suit, advancing claims under the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, and advancing
claims on behalf of patients, asserting that the defendants “fraudulently misrepresented the
quality of care their plans would provide to subscribers” and “made false representations to their
subscribers in violation of the Pennsylvania Unfair Trade Practices and Consumer Protection
Law, 73 Pa. Const. Stat. Ann. § 201-1 et seq. (West 2001).” Id at 282. The district court
dismissed the action, finding that the Society lacked standing to assert patients‟ claims. Id. As
the dismissal was pursuant to F.R.C.P. 12(b)(6), the appellate court was required to “accept as
true all material allegations of the complaint and draw all reasonable inferences in a light most
favorable to plaintiff,” id. at 283, specifically including the allegation that the defendants
prevented the plaintiff‟s patients from receiving necessary mental health services. Id. at 289.
We do not find KMC‟s reliance on this case to be persuasive, as the record before this Court



                                                 9
demonstrates that the patients received necessary mental health services. Therefore, we conclude
that KMC has not demonstrated that it is entitled to rely on third party standing to claim the due
process protections outlined in Goldberg afforded to applicants and recipients by 42 C.F.R. §
431.205(d), including the right to present evidence and confront adverse witnesses.
           2. KMC does not assert due process rights other than those provided by 42
              C.F.R. § 431.205(d ).
       The Department argues that the findings and conclusions of the peer review psychiatrist
were properly admissible under the hearsay rules governing administrative hearings and federal
regulations prevent the disclosure of the identity of the peer review psychiatrist, making it
impossible for KMC to cross-examine the peer review psychiatrist. KMC only argues that these
procedures violate its due process rights under Goldberg, and that if the Department cannot
disclose the identity of the peer review psychiatrist, its only choice is to not present the views of
the peer review psychiatrist at hearing. KMC‟s arguments are not persuasive.
       An administrative hearing is an informal hearing, and “technical rules of evidence” do
not apply. IDAPA 16.05.03.134. Hearsay evidence is admissible in an administrative hearing so
long as it is the kind of evidence commonly relied upon by prudent persons in the conduct of
their affairs, or is otherwise corroborated by competent evidence in the record. I.C. § 67-
5251(1); IDAPA 16.05.03.134.        The Department argues that the peer review psychiatrist‟s
findings and conclusions are corroborated by the Department‟s medical witness, Dr. Lehman.
Dr. Lehman testified to the peer review psychiatrist‟s credentials, found that the reviewer
examined the entire records, and identified those portions of the medical records that supported
the reviewer‟s findings and conclusions. Given that KMC does not provide argument against the
admissibility of this hearsay evidence, other than its argument based upon its claim of third-party
standing, we conclude that the hearing officer properly admitted the peer review psychiatrist‟s
findings and conclusions.
       The Department also argues that KMC is not entitled to cross-examine the peer review
psychiatrist because federal regulations protect the identities of peer reviewers from disclosure
without written consent of the psychiatrist. Code of Federal Regulation, 42 § 480.133(a)(2)(iii)
provides in relevant part that: “A QIO may disclose to any person, agency, or organization
information on a particular practitioner or reviewer at the written request of or with the written
consent of that practitioner or reviewer.” The peer review psychiatrist has not provided such



                                                 10
written request or consent in the instant cases.      Additionally, a QIO may not disclose its
deliberations, either in written form or through oral testimony, in connection with the
administrative hearing or review of a beneficiary‟s claim. 42 C.F.R. § 480.139(a)(2). A QIO
must disclose, if requested through an administrative hearing or review of a beneficiary‟s claim,
the reasons for its decision. 42 C.F.R. § 480.139(b)(2). However, “[t]he QIO must insure [sic]
that the opinions or judgements of a particular individual or practitioner cannot be identified
through the materials that are disclosed.” Id. KMC only argues that the Department cannot offer
the findings and conclusions of the peer review psychiatrist at hearing if the psychiatrist does not
consent to release his or her identity. KMC‟s argument is unpersuasive and lacks citation to
authority. A party waives an issue cited on appeal if either authority or argument is lacking.
State v. Zichko, 129 Idaho 259, 263, 923 P.2d 966, 970 (1996). Therefore, we decline to address
KMC‟s argument.
   B. The district court erred when it concluded that IDAPA 16.03.09.079.05 conflicts
      with 42 C.F.R. § 441.152.
       KMC argues that IDAPA 16.03.09.079.05 conflicts with 42 C.F.R. § 441.152.
Certification of need for services is mandated by 42 C.F.R. § 441.152. Pursuant to that rule, a
hospital‟s treatment team is required to “certify that . . . (1) Ambulatory care resources available
in the community do not meet the treatment needs of the recipient; (2) Proper treatment . . .
requires services on an inpatient basis . . . ; [and] (3) The services can reasonably be expected” to
help the recipient. States that do not comply with the certification requirement may lose federal
funding. Psychiatric Healthcare Corp. of Missouri v. Dept. of Soc. Services, 100 S.W. 3d 891,
905 (Mo. App. 2003). To comply with that federal mandate, the Department has adopted a
regulation requiring that hospitals provide “[d]ocumentation sufficient to demonstrate the
medical necessity criteria is still met” when a hospital seeks to justify the length of stay for
inpatient psychiatric services for individuals under age 21. IDAPA 16.03.09.079.05. In the
instant cases, KMC argues that the certification requirement in the federal regulation preempts
the documentation requirement in the Idaho regulation. This argument is not persuasive.
       In Psychiatric Healthcare Corp., the state of Missouri adopted an administrative
regulation requiring that hospitals include a certificate of need form in a patient‟s medical record,
which complied with the certification requirement in 42 C.F.R. § 441.152, or the hospital would
forfeit all payment for medically necessary care. 100 S.W.3d at 904. The hospital argued that
adopting such a regulation is an abuse of the State‟s authority to adopt reasonable rules and


                                                 11
regulations.     Id.   The court held that the Missouri regulation, requiring documentation of
certification in the patient‟s medical record, served a legitimate state interest because it helped
keep Missouri in compliance with the federal regulations so as to help ensure continued federal
participation in funding. Id. at 905. Therefore, the regulation was not arbitrary, capricious, or
unreasonable.
         Similarly, the Idaho regulation requires that a hospital provide documentary evidence in
the medical record that a patient‟s treatment was medically necessary. This documentation
requirement is consistent with the requirement in 42 C.F.R. § 441.152 that a treatment team
certify that “proper treatment . . . requires services on an inpatient basis.” Like the Missouri
regulation in Psychiatric Healthcare Corp., the Idaho regulation ensures compliance with the
federal regulation. Furthermore, 42 C.F.R. § 480.102(c) requires “health care practitioners and
providers to maintain evidence of the medical necessity and quality of health care services they
provide to Medicare patients as required by QIOs.”                   We conclude that the documentation
requirement in IDAPA 16.03.09.079.05 is consistent with federal regulations and statutes.2
         C. The Department properly denied KMC reimbursement for psychiatric care that
            was not medically necessary in the instant cases.
         The Department denied KMC reimbursement for psychiatric care that it determined was
not medically necessary in each of the instant cases. Pursuant to IDAPA 16.03.09.079, the
Department will pay for medically necessary inpatient psychiatric hospital services for recipients
under the age of 21. “Reimbursement for the recipient‟s admission and length of stay is subject
to . . . retrospective review by the Department or its designee. . . . If such review identifies that
an admission or continued stay is not medically necessary, then no Medicaid payment will be
made.” IDAPA 16.03.09.08.
         Under the applicable regulations, medical necessity is judged by severity of illness and
intensity of services criteria:
                Medical Necessity Criteria. Both severity of illness and intensity of
         services criteria must be met for admission to an IMD or psychiatric unit of a
         general hospital.



2
         Further, even if IDAPA 16.03.09.079.05 did conflict with 42 C.F.R. § 441.152, KMC does not argue that
the regulation impacts a substantial right. Indeed, it seems counterintuitive that KMC would have a substantial right
to decline to offer documentary evidence of medical necessity. Such a policy would serve to undermine the federal
government‟s legitimate interest in combating Medicaid fraud.


                                                         12
a. Severity of illness criteria. The child must meet one (1) of the following
criteria related to the severity of his psychiatric illness:

       i. Is currently dangerous to self as indicated by at least one (1) of
       the following:
               (1) Has actually made an attempt to take his own life in the
               last seventy-two (72) hours (details of the attempt must be
               documented); or
               (2) Has demonstrated self-mutilative behavior within the
               past seventy-two (72) hours (details of the behavior must
               be documented); or
               (3) Has a clear plan to seriously harm himself, overt
               suicidal intent, and lethal means available to follow the
               plan (this information can be from the child or a reliable
               source and details of the child‟s plan must be documented);
               or
               (4) A mental health professional has information from the
               child or a reliable source that the child has a current plan,
               specific intent, or recurrent thoughts to seriously harm
               himself and is at significant risk to making an attempt to
               carry out the plan without immediate intervention (details
               must be documented); or

       ii. Child is actively violent or aggressive and exhibits homicidal
       ideation or other symptoms which indicate he is a probable danger
       to others as indicated by one (1) of the following:
               (1) The child has actually engaged in behavior harmful or
               potentially harmful to others or caused serious damage to
               property which would pose a serious threat of injury or
               harm to others within the last twenty-four (24) hours
               (description of the behavior and extent of injury or damage
               must be documented, as well as the time the behavior
               occurred relative to the present); or
               (2) The child has made threats to kill or seriously injure
               others or to cause serious damage to property which would
               pose a threat of injury or harm to others and has effective
               means to carry out the threats (details of threats must be
               documented); or
               (3) A mental health professional has information from the
               child or a reliable source that the child has a current plan,
               specific intent, or recurrent thoughts to seriously harm
               others or property and is at significant risk of making the
               attempt without immediate intervention (details must be
               documented); or




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                      iii. Child is gravely impaired as indicated by at least one (1) of the
                      following criteria:
                               (1) The child has such limited functioning that his physical
                               safety and well being are in jeopardy due to his inability for
                               basic self-care, judgment and decision making (details of
                               the functional limitations must be documented); or
                               (2) The acute onset of psychosis or severe thought
                               disorganization or clinical deterioration has rendered the
                               child unmanageable and unable to cooperate in non-
                               hospital treatment (details of the child‟s behaviors must be
                               documented); or
                               (3) There is a need for treatment, evaluation or complex
                               diagnostic testing where the child‟s level of functioning or
                               communication precludes assessment and/or treatment in a
                               non-hospital based setting, and may require close
                               supervision of medication and/or behavior.

               b. Intensity of service criteria. The child must meet all of the following
               criteria related to the intensity of services needed to treat his mental
               illness:

                      i. It is documented by the Regional Mental Health Authority that
                      less restrictive services in the community do not exist or do not
                      meet the treatment or diagnostic needs of the child, or the child has
                      been unresponsive to treatment at a less intensive level of care. The
                      services considered, tried, and/or needed must be documented; and

                      ii. The services provided in the hospital can reasonably be
                      expected to improve the child‟s condition or prevent further
                      regression so that inpatient services will no longer be needed; and

                      iii. Treatment of the child‟s psychiatric condition requires services
                      on an inpatient basis, including twenty-four (24) hour nursing
                      observation, under the direction of a psychiatrist. The child
                      requiring this treatment must not be eligible for independent passes
                      or unit passes without observation or being accompanied by
                      hospital personnel or a responsible other.
IDAPA 16.03.09.079.01.
The Department also regulates the length of stay for which it will reimburse a provider:
               Length of Stay. An initial length of stay will be established by the
       Department or its designee. An initial length of stay will usually be for no longer
       than five (5) days. For first time admissions where intensity of services criteria is
       not met the initial length of stay may not exceed forty-eight (48) hours. A hospital
       may request a continued stay review from the Department or its designee when
       the appropriate care of the recipient indicates the need for hospital days in excess


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       of the originally approved number. The continued stay review request may be
       made no later than the date authorized by the Department or its designee.
       Approval of additional days will be based on the following criteria:

                a. Documentation sufficient to demonstrate the medical necessity criteria
                is still met; and

                b. A plan of care that includes documentation sufficient to demonstrate
                that the child‟s psychiatric condition continues to require services which
                can only be provided on an in-patient basis, including twenty-four (24)
                hour nursing observation, under the direction of a psychiatrist or other
                physician qualified to treat mental disease; and

                c. Documentation sufficient to demonstrate the need for continued
                hospitalization, and that additional days at in-patient level of care will
                improve the recipient‟s condition.
IDAPA 16.03.09.079.05. We examine each case in turn to determine if there is substantial and
competent evidence in the record supporting the Department‟s conclusion regarding medical
necessity.
             1. The Department properly denied KMC reimbursement for psychiatric care
                that was not medically necessary in the case of J.M.

       J.M. was treated at NIBH from August 20, 2005, through August 31, 2005. Qualis
approved reimbursement for the period of August 20, 2005 through August 24, 2005, but denied
reimbursement for the period of August 25, 2005 through August 31, 2005. On appeal, the
Department concluded that KMC did not establish by a preponderance of the evidence that the
medical chart sufficiently documented the medical necessity of inpatient psychiatric care. KMC
argues that there is substantial evidence in the record supporting reimbursement for the entire
length of J.M‟s stay at NIBH. KMC‟s argument is not persuasive.
       There is substantial and competent evidence in the record demonstrating that after August
25, 2006, J.M. did not meet the length of stay criteria because the record lacked documentation
sufficient to demonstrate the medical necessity criteria. The hearing officer concluded that the
medical record indicated that J.M. was not suffering any suicidal or homicidal ideation after
August 22, 2005 and denied KMC reimbursement for the days of August 25 and 26, 2005. The
notes of the treating physician, Dr. Miewald, who testified for KMC before the hearing officer,
support the hearing officer‟s conclusion. Dr. Miewald‟s notes indicate that J.M. denied any
urges to harm himself or others after August 22, 2005. Without expressing any urges to harm



                                                15
himself or others, J.M did not meet the severity of illness criteria incorporated into the length of
stay analysis.
       While noting that J.M. lacked suicidal or homicidal ideation after August 22, 2005, the
hearing officer also found that KMC should be denied reimbursement for the period from August
27 through August 31, 2005, because KMC gave J.M. a supervised four-hour pass, which
therefore demonstrated that J.M. did not require acute inpatient care. Although not necessary to
our determination, this decision was in error.        Pursuant to IDAPA 16.03.09.079.01.b.iii,
treatment of a child‟s psychiatric condition “requires services on an inpatient basis, including
twenty-four (24) hour nursing observation, under the direction of a psychiatrist. The child
requiring this treatment must not be eligible for independent passes or unit passes without
observation or being accompanied by hospital personnel or a responsible other.” (emphasis
added). Dr. Miewald‟s notes indicate that J.M. was accompanied on his pass by his mother.
Therefore, this was an inappropriate basis for denying medical reimbursement because J.M. was
not ineligible for medically necessary care upon receiving a supervised pass.
       However, there is sufficient information in the record to affirm the hearing officer‟s
decision to deny KMC reimbursement for the dates of August 27 through August 31, 2005, on
alternate grounds; the same grounds the hearing officer relied upon to deny KMC reimbursement
for the days of August 25 and August 26, 2005. As noted above, J.M. lacked suicidal and
homicidal ideation after August 22, 2005 and thus did not meet the severity of illness criteria
incorporated into the length of stay analysis.        We therefore reverse the district court‟s
reimbursement decision regarding J.M.
           2. The Department properly denied KMC reimbursement for psychiatric care
              that was not medically necessary in the case of J.G.
       J.G. was treated at NIBH from December 23, 2005 through January 4, 2006. Qualis
approved reimbursement for the period of December 23, 2005 through December 28, 2005, but
denied reimbursement for the period of December 29, 2005 through January 4, 2006. On appeal,
the hearing officer concluded that KMC did not establish by a preponderance of the evidence
that J.G.‟s medical chart sufficiently documented the medical necessity of inpatient psychiatric
care. The Department argues that J.G. did not meet the severity of illness criteria after December
28, 2005, because J.G. did not evidence a specific intent to harm herself. KMC argues that J.G.‟s
medical records indicate that she planned to harm herself. KMC‟s argument is not persuasive.



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       As in the case of J.M., the Department approved an initial length of stay of five days and
the parties disagree whether the patient met the criteria for a continued length of stay. Approval
for reimbursement beyond the initial length of stay requires documentation sufficient to
demonstrate the medical necessity criteria are still met. KMC argues that J.G.‟s case fulfilled the
severity of illness criteria because J.G. was dangerous to herself during her stay at NIBH as
evidenced by her thoughts of harming herself. In order to meet the severity of illness criteria, a
patient must be considered a danger to harming one‟s self, and the record must include evidence
of a clear plan of harming one‟s self, overt suicidal intent, and lethal means available to follow
the plan. IDAPA 16.03.09.079.01.a.i.3. Details of the patient‟s plan must be documented. Id.
       KMC is correct that the record indicates that J.G. entertained thoughts of harming herself
after December 28, 2005. J.G.‟s treating physician, Dr. Sandra Nelson documented instances
when J.G. entertained thoughts of harming herself or wished that she was not alive on December
29, 30, and 31, 2005, and January 2, 2006. However, Dr. Nelson‟s notes on December 31, 2005
and January 2, 2006, state that J.G. has no current intent or plan for acting on her suicidal
thoughts. The record does not document evidence that J.G. had a clear plan to harm herself or
that she had the lethal means available to follow her plan. As J.G.‟s medical records do not
demonstrate that J.G. met the severity of illness criteria for a continued length of stay prescribed
by IDAPA 16.03.09.079.01.a.i.3, we are unable to find error in the Department‟s decision to
deny reimbursement.      Therefore, we reverse the district court‟s reimbursement decision
regarding J.G.
           3. The Department properly denied KMC reimbursement for psychiatric care
              that was not medically necessary in the case of T.K.
       T.K. was treated at NIBH from November 6, 2005 through December 14, 2005. Qualis
approved reimbursement for the period of November 6, 2005 through November 8, 2005, but
denied reimbursement for the period of November 9, 2005 through December 14, 2005.
Subsequently, the Department reimbursed KMC for the period of November 19, 2005 through
December 12, 2005, through a non-Medicaid fund. KMC requested reconsideration of Qualis‟s
reimbursement decision, and on February 21, 2006, Qualis upheld its initial decision. On appeal,
the hearing officer found that the medical record did not justify inpatient hospitalization after
November 9, 2005 because the medical chart did not demonstrate that T.K. met the medical
necessity criteria. KMC argues that the medical record justifies reimbursement beyond the initial
length of stay the Department approved in T.K.‟s case. We disagree.


                                                17
       In order to justify reimbursement beyond an initial length of stay, a recipient must meet
three criteria: (1) documentation that the medical necessity criteria are still met; (2)
documentation that the recipient‟s psychiatric condition continues to require services that can
only be provided on an inpatient basis; and (3) documentation of the need for continued
hospitalization and that additional days of inpatient care will improve the recipient‟s condition.
IDAPA 16.03.09.079.05.
       As previously noted, the medical necessity criteria contain two primary components: the
severity of illness criteria and the intensity of service criteria. IDAPA 16.03.09.079.01. Under
the severity of illness criteria, there are three broad categories, one of which a recipient must
meet, including that the patient is gravely impaired. The Department concluded that the medical
record did not document that T.K. was gravely impaired. As to the third criterion considered in
the length of stay analysis, i.e., documentation sufficient to demonstrate the need for continued
hospitalization, the Department concluded that the record did not contain documentation of the
need for treatment, evaluation, or complex diagnostic testing.
       KMC argues, relying primarily on nursing notes in the medical chart, that the record
contains documentation that T.K. was gravely disabled and required inpatient hospital care. We
acknowledge that the nursing notes in the medical record indicate that, for the majority of T.K.‟s
stay at NIBH, she was non-communicative, unwilling to engage staff with eye contact or
conversation, had difficulty answering questions, and had trouble maintaining basic hygiene and
social interaction. However, we need not conclude whether the Department erred when it
concluded that the medical record did not document that T.K. was gravely impaired.
       Rather, we conclude that the medical record does not contain documentation sufficient to
demonstrate the need for continued hospitalization and documentation that additional days of
inpatient care would improve T.K.‟s condition. KMC argues that the nursing notes indicate that
T.K. suffered from hallucinations while at NIBH, and therefore, the record documents the need
for continued hospitalization. However, KMC does not provide any argument that the medical
record contains documentation that additional days of inpatient care would improve T.K.‟s
condition. This is a requisite criterion to justify reimbursement beyond an initial length of stay
under IDAPA 16.03.09.079.05. One would expect to find documentation to satisfy this criterion
in the psychiatric update notes of T.K.‟s treating psychiatrists while at NIBH. However, the
psychiatric update notes in the record are sparse at best and do not document that additional days



                                                18
of inpatient care would improve T.K.‟s condition. Therefore, we reverse the district court‟s
reimbursement decision regarding T.K.
       D. Neither party is entitled to an award of attorney fees and costs on appeal.
       Each party has requested an award of attorney fees on appeal pursuant to I.C. § 12-117.
KMC is not the prevailing party in this appeal. Consequently, it is not entitled to an award of
attorney fees. Giltner, Inc. v. Idaho Dep’t of Commerce and Labor, 145 Idaho 415, 421, 179
P.3d 1071, 1077 (2008) (citing Mercy Med. Ctr. v. Ada Co., 143 Idaho 899, 903, 155 P.3d 700,
704 (2007)). As to the Department‟s request, the primary questions presented by this appeal are
whether the retrospective review process denied KMC its due process rights and whether IDAPA
16.03.09.079.05 conflicts with 42 C.F.R. § 441.152. These issues have not been previously
addressed by an Idaho appellate court, and therefore involve matters of first impression. In
Wheeler v. Idaho Dept. of Health and Welfare, ___ Idaho ___, ___, 207 P.3d 988, 997-98
(2009), this Court declined to award attorney fees under I.C. § 12-117 when a case involves
issues of first impression. (citing In re Ferdig, 146 Idaho 862, 863, 204 P.3d 502, 503 (2009)).
Therefore, we decline to award the Department attorney fees on appeal.
                                     IV. CONCLUSION
       We reverse the decision of the district court and affirm the Department‟s reimbursement
decisions. We award costs to the Department, but decline to award attorney fees on appeal.

       Chief Justice EISMANN and Justices BURDICK, J. JONES and W. JONES CONCUR.




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