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IN THE SUPREME COURT OF THE STATE OF KANSAS No. 102,324 VILLAGE VILLA, et al., Appellants, v. KANSAS HEALTH POLICY AUTHORITY, Appellee.

SYLLABUS BY THE COURT

1. Medicaid is a joint federal-state program providing medical assistance to eligible individuals. Its purpose is to provide medical and rehabilitation assistance to those who qualify as poor, aged, blind, or disabled. States are not required to participate in the Medicaid program, but once one elects to do so, it must comply with applicable federal regulations.

2. Determining whether an administrative regulation violates the United States Constitution requires statutory construction, which is a question of law. An appellate court has unlimited review of such issues.

3. When a statute or regulation is challenged as an equal protection violation, the first step is to determine the nature of the classifications at issue and examine whether those classifications result in arguably indistinguishable classes of individuals being treated differently. Equal protection is implicated only if there is differing treatment of similarly 1

situated individuals. In the second step, a court examines the rights affected by the classifications, which dictates the level of scrutiny to be applied--strict scrutiny, intermediate scrutiny, or the deferential scrutiny of rational basis. The final step requires determining whether the relationship between the classifications and the object desired to be obtained withstands the applicable level of scrutiny.

4. K.A.R. 30-10-1a(a)(7), (9), and (36)(C) are applied when determining whether there is a change of provider ownership for Medicaid reimbursement purposes. These regulations distinguish between parties that own or have equity in 5 percent or more of a provider facility and those who own or have equity in less than 5 percent. The latter are able to purchase a provider facility in which they own or have equity and be treated as new owners for the purposes of calculating rates. Those owning 5 percent or more are not. Thus, these regulations treat similarly situated entities differently.

5. K.A.R. 30-10-1a(a)(7), (9), and (36)(C) are subject to the rational basis test when challenged as an equal protection violation. A party attacking these regulations as unconstitutional for failing to satisfy the rational basis standard has the burden to negate every conceivable rational basis that might support the classifications these regulations create.

6. K.A.R. 30-10-1a(a)(7), (9), and (36)(C) bear a reasonable relationship to a valid legislative purpose and do not violate equal protection principles.

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7. Constitutional procedural due process analysis is a two-step process in which the court first determines whether due process is implicated, and, if it is, then determines what process is due. At the first level, the claimant must establish some property or liberty interest such that the protections of the Due Process Clause are invoked. This property or liberty interest is not inherent in the Due Process Clause but must be rooted in state law.

8. Claims made in passing without argument or citations to authority are deemed waived and abandoned.

Appeal from Shawnee District Court; DAVID E. BRUNS, judge. Opinion filed January 11, 2013. Affirmed.

Larry G. Karns, of Glenn, Cornish, Hanson & Karns, Chartered, of Topeka, argued the cause and was on the brief for appellants.

Joann E. Corpstein, chief counsel, of Kansas Department on Aging, argued the cause and R. Greg Wright and Susan Barker Andrews, of the same department, were with her on the brief for appellee.

The opinion of the court was delivered by

BILES, J.: This is a Medicaid reimbursement appeal under the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. (now the Kansas Judicial Review Act, K.S.A. 2011 Supp. 77-601 et seq.). Three corporations, each of which owns a nursing home facility, want their reimbursement rates recalculated because they believe there was a change of ownership authorizing the adjustments. The Kansas Department on Aging (KDOA) and Kansas Health Policy Authority (KHPA) 3

denied recalculation because of common ownership between the buyers and sellers, which they determined barred the rate changes. On review, the district court agreed. On appeal, the corporations maintain that the agency orders are invalid, violate the Equal Protection and Due Process Clauses of the United States Constitution, and are vague. We disagree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Prior to January 1, 2005, Virgil Goracke owned 20 percent of three nursing home facilities--Indian Trails Manor, Inc., d/b/a Indian Trails Mental Health Living Center, Inc.; Manor of Nortonville, Inc., d/b/a Village Villa; and Flint Hills, Inc., d/b/a Vintage Manor. There is no dispute these entities were Medicaid-certified nursing facilities. Goracke signed the 2003 and 2004 Medicaid cost reports for each facility as "Secretary and Owner." He also solely owned a separate company responsible for managing these three facilities.

Effective January 1, 2005, three other corporations owned entirely by Goracke purchased the three nursing homes. Goracke renamed them: Village Villa, Inc., f/k/a Manor of Nortonville, Inc., d/b/a Village Villa; Providence Living Center, Inc., f/k/a Indian Trails Manor, Inc., d/b/a Indian Trails Mental Health Living Center; and Flint Hills Care Center, Inc., f/k/a Flint Hills, Inc., d/b/a Vintage Manor. Goracke signed the 2005 Medicaid cost reports for each facility as "President and Owner."

Medicaid is a joint federal-state program providing medical assistance to eligible individuals. Its purpose is to provide medical and rehabilitation assistance to those who qualify as poor, aged, blind, or disabled. See 42 U.S.C.

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