When Long‑Standing Unwritten Medicaid Practices Become Binding Policy: Commentary on Hattiesburg Medical Park Management Corp. v. Mississippi Division of Medicaid

I. Introduction

In Hattiesburg Medical Park Management Corp. v. Mississippi Division of Medicaid (Miss. Sup. Ct. Nov. 20, 2025), the Supreme Court of Mississippi confronted a recurring question in administrative and health-care reimbursement law: when may an agency, after years of handling a recurring issue one way, suddenly insist that its written rules have always required a different result, and retroactively “correct” the past practice without notice?

The dispute arose between a group of long-term‑care providers (collectively, the “Providers”) and the Mississippi Division of Medicaid (“DOM”), which administers the state’s Medicaid program. For more than two decades, DOM had consistently allowed certain insurance-related payments—termed “dividends” or “rebates”—to be treated as “other income” on cost reports, without requiring those payments to offset the Providers’ insurance expense. Then, in an audit of 2015 cost reports, DOM reversed course, reclassifying the payments and offsetting them against insurance costs, thereby lowering the Providers’ Medicaid reimbursement rates under Mississippi’s prospective payment system.

The key questions were:

• Did DOM in fact have a long‑standing internal policy (albeit unwritten) not to offset these insurance payments?
• If so, was DOM’s abrupt reversal—without prior public notice—arbitrary and capricious?
• Did federal law, specifically 42 C.F.R. § 447.205(a), require public notice before DOM could implement such a significant change in its “methods and standards for setting payment rates”?

The chancery court had upheld DOM’s adjustments. On appeal, the Supreme Court of Mississippi reversed and rendered judgment in favor of the Providers, holding that DOM’s long-standing unwritten practice constituted a binding internal policy; that DOM’s unexplained reversal was arbitrary and capricious; and that DOM was required to give public notice before making such a significant change in how it set payment rates. A vigorous dissent, however, accused the majority of shifting the burden of proof, disregarding the supremacy of the written State Plan and Provider Reimbursement Manual (PRM), and exposing taxpayers to unnecessary costs.

II. Summary of the Opinion

A. Factual Setting

The Providers are a collection of long-term‑care facilities (Bedford Care Centers) and their associated home office (Hattiesburg Medical Park Management Corp.). They participate in Mississippi Medicaid and are reimbursed under a prospective payment system: costs from a base year (here, 2015) determine reimbursement rates two years later (2017). The Providers purchased insurance through three entities:

• MHCA-SIF – a self-insurers’ fund for workers’ compensation coverage;
• CULIC – a captive insurance company providing professional and general liability coverage;
• LTCEIC – an excess coverage insurer for MHCA-SIF and CULIC, partially owned by some Providers.

These insurers periodically returned money to the Providers. The Providers called these amounts “dividends”; DOM called them “rebates.” For many years (from at least the early 1990s through 2015), Providers disclosed these amounts on their cost reports as “other income,” commonly by listing only the insurer acronyms, and they did not offset the payments against insurance expense. DOM’s desk reviews and audits did not require offsetting.

In 2016, the Providers filed their 2015 cost reports, again treating these payments as non‑offset “other income” and labeling them as “out of period adjustments” (i.e., relating to prior years). DOM’s desk review approved the reports, setting 2017 prospective payment rates accordingly.

Around 2018, DOM audited the 2015 reports and, this time, concluded that the “other income” from MHCA-SIF, CULIC, and LTCEIC was insurance-related and must be offset against the Providers’ insurance costs in the year received, pursuant to the State Plan’s incorporation of the federal Medicare Provider Reimbursement Manual (PRM 15‑1). DOM recalculated allowable costs and reduced the Providers’ 2017 rates. DOM’s executive director upheld the audit adjustments.

The Providers administratively appealed and then sought judicial review in chancery court. The chancellor affirmed DOM, finding the PRM required the offsets, that DOM had not violated any statutory or constitutional right, and that the alleged unwritten internal policy was unproven and, in any event, could not override written policy.

B. Supreme Court’s Majority Holding

The Mississippi Supreme Court reversed and rendered judgment for the Providers. The Court held:

1. Existence of a Long-standing Internal Policy. Substantial evidence established that DOM had, for more than twenty years, deliberately applied an internal (though unwritten) policy not to offset these insurance-related payments against insurance costs. This was not a mere failure to “catch” errors in cost reports; it was an affirmative and consistent course of conduct, including explicit directions to auditors and providers.
2. Arbitrary and Capricious Policy Reversal. Under Mississippi administrative law, an agency must either follow its prior norms and decisions or give a reasoned explanation for a departure. DOM’s explanations—that there was no internal policy, or that any prior treatment was a “mistake” belatedly corrected—were inadequate given the depth and duration of its contrary practice. The abrupt reversal, applied retroactively via audit, was therefore arbitrary and capricious.
3. Public Notice Requirement under 42 C.F.R. § 447.205(a). DOM’s shift from not offsetting to offsetting these payments constituted a “significant change in its methods and standards for setting payment rates for services,” triggering the federal public notice requirement. DOM provided no such notice. The majority rejected DOM’s reliance on the regulatory exception for changes that merely conform Medicaid to Medicare rules because DOM’s own practice had become the operative standard.

Because the Court resolved the case on arbitrariness and lack of notice, it did not decide whether the PRM substantively required these payments to be offset or whether equitable estoppel applied. It simply held that DOM could not lawfully change its long-standing practice without public notice and a reasoned explanation.

C. The Dissent

Presiding Justice King, joined by Presiding Justice Coleman, dissented. The dissent emphasized:

• The Providers bear the burden of proof to show DOM’s decision was wrong.
• The Providers failed to prove any actual DOM policy not to offset insurance income, let alone its specific contours.
• DOM is legally bound to follow the written State Plan and PRM; unrecorded, informal practices cannot override those texts.
• DOM merely corrected an oversight once it realized that the “other income” was insurance-related, acting in conformity with its written rules—exactly what it is required to do.
• Requiring notice of a “change” from an unwritten, amorphous practice undermines administrative predictability and improperly shifts costs to taxpayers.

The dissent would have affirmed DOM and the chancellor.

III. Regulatory and Legal Framework

A. Medicaid, the State Plan, and PRM 15‑1

Medicaid is a cooperative federal–state program. Each state must submit and follow a “State Plan,” a detailed agreement with the federal Centers for Medicare & Medicaid Services (CMS) specifying eligibility, covered services, and payment methodologies. In Mississippi:

• DOM administers the program pursuant to Mississippi Code sections 43‑13‑103 and 43‑13‑107.
• The Mississippi Medicaid State Plan defines how providers’ costs are measured and how reimbursement rates are set.

In this case, the relevant State Plan provision (Attachment 4.19‑D, Chapter 2, § 2‑1) states:

“Allowable costs are based on CMS PRM 15‑1 standards except as otherwise described in this plan. In cases where Division of Medicaid cost reporting rules conflict with ... PRM 15‑1, Division of Medicaid rules take precedence for Medicaid provider cost reporting purposes.”

Thus, where the State Plan is silent about a cost issue, the federal Provider Reimbursement Manual (PRM) 15‑1—a Medicare manual—fills the gap, unless DOM has promulgated a contrary rule.

B. PRM Provisions on Insurance Premiums and Refunds

PRM 15‑1 provisions highlighted in the opinion (especially as discussed in the dissent) include:

• PRM § 2162 and 2162.2
  • Insurance premiums (including those paid to captive insurers) are allowable costs.
  • But “any funds returned to the insured by the insurer (rebates, distributions, etc.) must be offset against the costs in the year you receive them.”
  • Where the provider is related to the insurer, excess reserves and investment gains must be used to lower reasonable premium levels (i.e., no profit component).
• PRM § 2162.7(B)(3) (self-insurance funds)
  • Premiums paid to a self-insurance fund are allowable costs only if, among other conditions, “any rebates, dividends, etc., to the provider from the fund will be used to reduce allowable cost.”
• PRM ch. 8, §§ 800 & 804
  • Purchase discounts, allowances, refunds, and rebates reduce the cost of whatever was purchased, rather than being treated as income.
  • Such amounts are “reductions of the specific costs to which they apply in the accounting period in which the purchase occurs,” or, if that’s impractical, they reduce comparable expenses in the period received.

DOM argued, and the chancellor agreed, that these PRM provisions compelled offsetting the MHCA-SIF, CULIC, and LTCEIC payments in the year received.

C. Prospective Payment vs. Cost Reimbursement

Under a cost reimbursement system, a payer (e.g., Medicare) reimburses a provider for actual allowable costs incurred in the period. That makes PRM’s emphasis on matching expense reductions to the correct period straightforward.

Mississippi Medicaid, by contrast, uses a prospective payment system for nursing facilities:

• Allowable costs for a base year (2015) are used to set per diem rates paid in a future year (2017).
• The 2017 rates do not adjust automatically if 2017’s actual costs differ from 2015’s.
• Dividends or refunds received in 2015 but relating to prior years may distort the prospective rate if offset only in the receipt year.

The majority relied on testimony that DOM historically refused to offset these multi-year, performance-based payments precisely because of those distortions and because offsetting would perversely “reward” poorly performing facilities (which received no refunds) by giving them higher rates.

D. Public Notice Requirement – 42 C.F.R. § 447.205(a)

Federal regulations require a state Medicaid agency to:

“provide public notice of any significant proposed change in its methods and standards for setting payment rates for services[.]” 42 C.F.R. § 447.205(a).

There is an exception where the change is “being made to conform to Medicare methods or levels of reimbursement” (§ 447.205(b)(1)). DOM invoked this exception, arguing that its new insistence on offsets merely aligned its practice with PRM 15‑1.

The majority rejected that framing; as discussed below, it held that DOM’s actual longstanding practice was itself the operative standard, and changing that practice was a significant change requiring notice.

IV. Detailed Analysis of the Majority’s Reasoning

A. Standard of Review and “Arbitrary and Capricious”

The Court reviewed the chancellor’s affirmance of DOM under the standard applied to agency decisions: whether the agency’s order

1. was supported by substantial evidence,
2. was arbitrary or capricious,
3. was beyond the agency’s power, or
4. violated statutory or constitutional rights.

Prior decisions define:

• Arbitrary – acts done “without adequately determining principle; not done according to reason or judgment.”
• Capricious – acts done “without reason, in a whimsical manner,” implying a disregard for facts and controlling principles. (Harrison County Bd. of Supervisors v. Carlo Corp., 833 So. 2d 582, 583 (Miss. 2002), quoting McGowan.)

The Court reviews legal interpretations of statutes, rules, and regulations de novo, but gives deference to agency factual findings when supported by substantial evidence.

B. Existence of a Long-standing Internal Policy

The central factual dispute was whether DOM truly had a long-standing internal policy not to offset these insurance-related payments, or whether it had simply failed to notice an error in cost reports.

The majority relied heavily on testimony from four witnesses with first-hand experience in Medicaid reimbursement and cost reporting:

1. Jamie Collier – DOM’s former Director of Reimbursement (late 1980s/1990s to 2001), later a private consultant:
   • Described internal meetings among DOM staff in the 1990s where they explicitly debated whether to offset MHCA-SIF refunds.
   • Explained that:
     • Providers cannot claim prior-year expenses on future cost reports, and DOM analogized that principle to prior-year refunds.
     • Offsetting would penalize facilities with good workers’ compensation performance (who earned refunds) by reducing their allowable costs—and thus their prospective rates—relative to poor performers who received no refunds.
   • Concluded:

     “We made the decision that it should not be offset ... and it became like an internal policy. I regret that we didn’t put it in the State Plan or in the cost report instructions.”

   • Testified that this practice continued after she left DOM, as evidenced by her own cost-report work and DOM’s desk reviews.
2. Stephen Worrel – CFO of Hattiesburg Medical Park Management Corp.:
   • Prepared cost reports for the Bedford facilities since 1981.
   • Confirmed that from 1993 to 2018 he never offset MHCA-SIF, CULIC, or LTCEIC refunds against insurance expense.
   • DOM never raised the issue in desk reviews or audits and never instructed him to change this practice.
3. Leon Lebreton – CPA and reimbursement consultant, accepted as an expert:
   • Prepared cost reports for Mississippi facilities receiving similar insurance payments.
   • Also did not offset these payments, based on their multi-year character.
   • Testified that if DOM had a policy of not offsetting these payments and then changed that position, this would be a “significant change” requiring public notice and likely a State Plan amendment.
4. Harry Strohm – CPA and former DOM audit contractor, accepted as an expert on Medicaid reimbursement:
   • Performed nursing-facility audits for DOM in the 1990s and early 2000s and continued to work with provider cost reports thereafter.
   • Testified that DOM explicitly told him and other auditors not to offset these insurance refunds, and that the same approach held “from the 1990s until” the 2018 audits at issue.
   • Reiterated that he was “aware that [DOM] didn’t want us to offset them, that [DOM] told us we shouldn’t offset it.”

Against this, DOM offered a single witness:

• Manuel Pilgrim – DOM’s Director of Financial and Performance Review, employed by DOM only since September 2015:
  • Denied knowledge of any internal policy; asserted that “everything has to be in writing.”
  • Claimed DOM did not know the acronyms MHCA-SIF, CULIC, and LTCEIC were insurers until the audit.
  • Framed DOM’s conduct as “an identification of something that hasn’t been being noticed,” not as a policy reversal.

The majority found Pilgrim’s testimony unpersuasive on historical practice, given his short tenure and lack of inquiry into past DOM treatment of these payments. It held that DOM as an agency “cannot feign ignorance of its own internal practices” and that the only reasonable inference from two-plus decades of consistent treatment, reinforced by testimony, is that DOM had an internal policy not to offset these dividends.

Importantly, the Court treated DOM’s course of conduct—desk reviews year after year, explicit instructions to auditors, and providers’ reliance—as a functional publication of policy, even if not written in the State Plan or formal regulations.

C. Distinguishing “Correction of Mistake” from Policy Reversal

DOM attempted to analogize this case to Mississippi Methodist Hospital & Rehabilitation Center, Inc. v. Mississippi Division of Medicaid, 319 So. 3d 1049 (Miss. 2021), where:

• DOM belatedly noticed that some nursing facilities had been including a portion of a hospital assessment as an allowable cost on their nursing-facility cost reports.
• DOM disallowed this practice, and the provider argued DOM had impermissibly changed its interpretation without notice.
• The Court upheld DOM, finding no evidence that DOM’s prior acceptance was an affirmative “norm” or “decision” rather than a failure to notice a component buried within a broader allocation.
• The Court emphasized that “agencies may correct mistakes of law, even when a party relied to its detriment on the mistake.”

Here, by contrast, the majority concluded:

• The Providers did offer evidence that DOM’s treatment of the dividends was an “affirmative ‘norm’ or ‘decision’.”
• DOM had repeatedly and expressly declined to offset such payments, over a span of more than twenty years, even when cost-report preparers labeled them as prior-year insurance refunds and marked them “no offset required.”
• DOM’s “we didn’t know what the acronyms meant” theory would require believing DOM overlooked thousands of cost reports for roughly 105 facilities over 25 years and never once questioned these recurring line items.

The Court invoked the general principle from Methodist Specialty Care Center v. Mississippi Division of Medicaid, 305 So. 3d 1088, 1098 (Miss. 2020):

“An agency must either conform to its prior norms and decision or explain the reason for its departure from such precedent.”

DOM’s explanations—that no policy existed, that any prior practice was a mistake, or that the standards “were just overlooked and not applied”—were deemed inadequate in light of the record. After two-plus decades, the “mistake” itself had become the norm. An unreasoned, retroactive departure from that norm was arbitrary and capricious.

D. Public Notice Requirement under 42 C.F.R. § 447.205(a)

Having found DOM’s conduct arbitrary, the majority turned to the federal notice requirement. Key points:

• Scope of the Regulation. The regulation is not limited to formal State Plan amendments. It requires public notice for “any significant proposed change in [the state’s] methods and standards for setting payment rates for services.”
• Significance of the Change. Expert witnesses (Collier, Lebreton, Strohm) testified that changing the treatment of these payments—which directly affected the calculation of allowable costs and therefore reimbursement rates—was a “significant change.”
• DOM’s Practice as the De Facto Standard. The majority held that DOM’s long-standing internal policy was itself a “method and standard” for rate-setting. Thus, abandoning it amounted to a significant change—even if the written State Plan and PRM would technically have supported the new approach from the beginning.
• Rejection of the “Conforming to Medicare” Exception. DOM argued that it needed no notice because it was merely aligning Medicaid with Medicare (PRM) as allowed by § 447.205(b)(1). The Court disagreed, reasoning that DOM’s practice had diverged from PRM for decades; bringing Medicaid “back into line” after such a period was still a significant change from the actual operative standard.

In effect, the Court held that:

Even if an agency’s longstanding practice previously conflicted with its written rules, that practice can become the operative “method and standard” for payment. Altering it materially affects provider reimbursement and thus triggers federal public notice requirements.

Because DOM admittedly provided no public notice of this shift, the change was procedurally defective.

E. Scope and Limits of the Holding

The Court emphasized two limits to its decision:

• It did not decide whether offsetting the dividends is substantively correct under the PRM or State Plan.
• It did not address the Providers’ claims of equitable estoppel or the specific treatment of LTCEIC payments.

The judgment rests solely on:

• The existence of a long-standing internal policy not to offset these payments;
• DOM’s arbitrary, unexplained departure from that policy; and
• DOM’s failure to provide public notice of a significant change in rate-setting methods under 42 C.F.R. § 447.205(a).

V. The Dissent’s Counter-Analysis

A. Burden of Proof and Nature of the Alleged Policy

The dissent begins by reframing the case around the Providers’ burden of proof. Under Mississippi law, a party challenging DOM’s decision must prove that DOM was wrong. Here, the Providers asserted the existence of an unwritten DOM policy not to offset insurance “dividends.” Justice King argued:

• The Providers failed to produce any written evidence of such a policy.
• They did not even offer testimony that DOM actually told these specific Providers about such a policy.
• Witness testimony was inconsistent about the supposed scope of the policy (e.g., Collier’s testimony tied mainly to MHCA-SIF, while Strohm purported to extend it to LTCEIC before LTCEIC even existed).
• Critically, neither the Providers nor the majority could clearly articulate the precise content of the alleged policy: What kinds of insurance payments? From which entities? Under what conditions? For which years?

In the dissent’s view, the majority effectively shifted the burden of proof to DOM to disprove a vague, unwritten, and undefined policy, contrary to settled law.

B. Primacy of the State Plan and PRM

Justice King stressed that DOM is legally bound to follow the State Plan, which itself incorporates PRM 15‑1 by reference when silent. Under prior cases:

• DOM “speaks through” its State Plan and formal rules, not through informal or unwritten staff practices.
• Where the Plan and PRM are clear (as the dissent found them to be here), neither providers nor courts may rely on contrary, unstated practices to override those texts.

From the dissent’s perspective, the PRM’s directives on insurance rebates and self-insurance funds unambiguously required the Providers to offset these insurance payments against their allowable insurance costs in the year received. DOM’s failure to demand such offsets earlier was legal error, not policy.

C. “Correction of Oversight” and Precedent

The dissent read Mississippi Methodist Hospital & Rehab Center and Windsor Place Nursing Center as establishing that DOM may correct mistakes in prior cost-report treatment even if providers relied on those mistakes. The dissent framed DOM’s conduct here as:

“DOM simply fixed a previous oversight regarding how to account for this insurance income. DOM followed the written policy stated in the State Plan and the PRM as required of it by law, and of which the Providers had constructive notice.”

In other words, the dissent viewed this case as indistinguishable from prior situations where DOM belatedly noticed noncompliance and corrected it. For the dissent, the majority’s contrary approach silently undercuts those precedents and invites providers to hold DOM to its past failures.

D. Equitable Estoppel and Notice

Although the majority did not reach equitable estoppel, the dissent addressed it and rejected it:

• Estoppel requires reasonable reliance on a representation and a resulting detrimental change in position.
• Because the written PRM and State Plan clearly required offsets, the Providers had no justification to rely on any contrary, unwritten impressions.
• DOM cannot be estopped from enforcing the dictates of its Plan, “just as [providers] knew it would.” (Central Mississippi Medical Center.)

On the public notice issue, the dissent argued:

• DOM did not change its “methods and standards” at all; it applied the existing, written methods and standards to facts it only later understood.
• No notice is required for an agency to begin correctly enforcing its own rules.
• The majority’s failure to clearly identify the specific content of the alleged prior “policy” made it impossible to meaningfully apply 42 C.F.R. § 447.205(a).

The dissent warned that the majority’s approach creates an “impractical, unworkable rule” that could paralyze agencies and unfairly burden taxpayers by locking in erroneous practices.

VI. Precedents and Their Influence

A. Administrative Law: Agency Norms and Departures

The majority’s reasoning rests on a line of Mississippi cases that constrain agency discretion when departing from prior practices:

• Methodist Specialty Care Center v. Mississippi Division of Medicaid, 305 So. 3d 1088 (Miss. 2020)
  • Articulated the principle that an agency must either follow its prior norms and decisions or provide a reasoned explanation for departure.
• Mississippi Methodist Hospital & Rehabilitation Center, Inc. v. Mississippi Division of Medicaid, 319 So. 3d 1049 (Miss. 2021)
  • Allowed DOM to disallow a hospital assessment previously overlooked as part of an allocation, because there was no evidence that allowing such assessment was an affirmative norm or decision.
  • Emphasized that correcting unnoticed inconsistencies with the text of the State Plan is permissible.

Hattiesburg Medical Park turns on how to classify DOM’s prior behavior: oversight (as in Mississippi Methodist) or considered practice (as in Methodist Specialty Care’s “norm” concept). The Court finds itself in the latter camp due to the weight of testimony and the extraordinary duration and consistency of the non-offset treatment.

B. Cases Emphasizing Primacy of the State Plan (Relied on by the Dissent)

The dissent cited several decisions underscoring that DOM must follow its State Plan and that providers cannot rely on contrary informal understandings:

• Mississippi Division of Medicaid v. Windsor Place Nursing Center, Inc., 296 So. 3d 68 (Miss. 2020) – held that uncorrected provider cost reports do not re-write the Plan.
• Central Mississippi Medical Center v. Mississippi Division of Medicaid, 294 So. 3d 1121 (Miss. 2020) – providers cannot claim DOM is estopped from applying the State Plan.
• Mississippi Division of Medicaid v. Yalobusha County Nursing Home, 346 So. 3d 413 (Miss. 2022) – reiterated the elements of estoppel and limited its application against DOM.

The majority did not reject these principles outright; instead, it implicitly distinguished them on the ground that here, DOM’s own conduct for decades had effectively re-shaped the operative standard of practice, raising separate concerns of arbitrariness and federal notice.

VII. Impact and Implications

A. For DOM and Other State Agencies

The decision is a substantial warning:

• Unwritten but consistent practices can become binding “methods and standards.”
  When an agency has:
  • Applied a practice uniformly for many years;
  • Expressly trained auditors and providers to follow it; and
  • Consistently reflected it in desk reviews and audits;
  courts may treat that practice as a de facto policy, even if in tension with written rules.
• Retroactive “correction” is risky without process.
  Agencies cannot assume that a long-run course of dealing can be recast as mere oversight. Before reversing course in a way that changes payment rates, agencies should:
  • Openly acknowledge the prior practice;
  • Explain why a change is necessary (e.g., federal compliance); and
  • Provide public notice under 42 C.F.R. § 447.205(a) if the change is significant.
• Internal documentation and codification matter.
  DOM’s vulnerability here stemmed in part from decades of unwritten practice. Agencies should:
  • Codify significant interpretations in written policy (State Plan, regulations, or provider manuals);
  • Audit and reconcile internal practices with written rules on a regular basis; and
  • When practical, seek CMS approval via State Plan amendment if deviating from PRM norms.

B. For Medicaid Providers

The decision strengthens providers’ ability to rely on long-standing agency behavior:

• Evidence of practice is powerful.
  Providers who can document:
  • Years of consistent desk reviews or audits treating an issue the same way;
  • Training or communications from agency staff; and
  • Course-of-dealing patterns across multiple providers;
  may be able to argue that the agency cannot suddenly reverse course without explanation and notice.
• Prospective payment nuances matter.
  The case underscores that methods appropriate for Medicare’s cost-reimbursement model may be ill-suited for Medicaid’s prospective system, and long-term-care providers can highlight such differences in challenging mechanically imported PRM rules.
• Preserving administrative records is critical.
  The Providers prevailed largely because they could offer former DOM officials and consultants who testified to established practices. Future providers should:
  • Maintain files of desk reviews, audit adjustments, and training materials;
  • Document oral guidance from agency staff in contemporaneous notes or follow-up emails; and
  • Raise potential inconsistencies early, in writing, to build a record.

C. Doctrinally: Mistake vs. Policy Change

Hattiesburg Medical Park refines the line between “correcting a mistake” and “changing policy”:

• A short-lived, sporadic, or unnoticed misapplication of rules may be correctable without notice.
• But a deliberate, longstanding, broadly implemented practice—even if inconsistent with underlying texts—can mature into a “norm or decision.” Altering it triggers heightened scrutiny and potentially federal notice requirements.

Courts will likely scrutinize:

• Duration and consistency of the practice;
• Evidence of conscious choice vs. inadvertence;
• Reliance by providers and staff; and
• Whether the change is applied retroactively via audits or prospectively via revised rules.

VIII. Complex Concepts Simplified

A. “Arbitrary and Capricious” in Plain Terms

An agency acts arbitrarily or capriciously when its decision:

• Is not based on a consistent principle or reasoning;
• Ignores important facts or long-standing practice without good explanation; or
• Appears sudden, unpredictable, or driven by whim rather than careful judgment.

In this case, the majority found arbitrariness because DOM:

• Followed one practice for over 20 years;
• Suddenly reversed that practice without acknowledging it or explaining why; and
• Did so retroactively, affecting past cost reports and current payment rates.

B. “Substantial Evidence”

Substantial evidence is more than a mere scintilla but less than overwhelming proof. It is:

“Evidence which, taken as a whole, provides a rational basis for the agency’s decision.”

The majority found substantial evidence of an internal policy in the combination of:

• Direct testimony from a former DOM director;
• Testimony from long‑time cost-report preparers and auditors; and
• Two-plus decades of consistent, unadjusted desk reviews.

C. “Methods and Standards for Setting Payment Rates”

This phrase in 42 C.F.R. § 447.205(a) refers to:

• The rules and formulas a state uses to calculate how much it pays providers for Medicaid services, including:
  • Which costs are “allowable,”
  • How those costs are measured and allocated, and
  • How base-year costs translate into prospective payment rates.

Changing whether a particular category of income must offset allowable costs—especially when that change alters prospective reimbursement rates—is a change in “methods and standards” for payment.

D. State Plan vs. PRM vs. Internal Policy

• State Plan – The binding, CMS-approved blueprint for the state’s Medicaid program. DOM must follow it.
• PRM 15‑1 – A federal Medicare manual incorporated by reference into the State Plan as the default source of cost principles when the Plan is silent, unless DOM adopts contrary rules.
• Internal Policy / Practice – The way DOM actually applies those written rules in day-to-day operations. Over time, a consistent and deliberate practice can become a de facto standard even if not written.

The core tension in this case is whether longstanding unwritten practice or the written PRM governs when they diverge. The majority did not hold that practice trumps text, but it held that practice constrains DOM’s ability to reverse itself without explanation and public notice.

E. Prospective Payment System

Think of a prospective payment system as:

• Using past cost data (say, from 2015) to set a fixed daily rate paid in a later year (2017), regardless of actual 2017 costs.
• Rate setting is therefore highly sensitive to how 2015 costs and revenues are classified.

If DOM suddenly reduces 2015 allowable costs by offsetting multi-year refunds, the 2017 rates may no longer cover the Providers’ actual expenses, especially if similar refunds are not received in 2017. That was part of the policy concern underlying DOM’s original internal practice.

IX. Conclusion

Hattiesburg Medical Park Management Corp. v. Mississippi Division of Medicaid marks a significant development in Mississippi administrative and Medicaid law. The Supreme Court held that:

• DOM’s two-decade practice of not offsetting certain insurance-related “dividends” against insurance costs was a deliberate internal policy, not a mere oversight.
• DOM’s abrupt, retroactive reversal—without acknowledging that policy or giving a reasoned justification—was arbitrary and capricious.
• Because this reversal significantly changed DOM’s methods and standards for setting Medicaid payment rates, DOM was required under 42 C.F.R. § 447.205(a) to provide public notice before implementing it.

The Court did not decide whether PRM 15‑1 ultimately requires such offsets as a substantive matter, nor did it reach equitable estoppel. Instead, its holding rests on principles of fair administrative process: agencies must be transparent, consistent, and procedurally compliant when altering entrenched practices that affect payment rates.

Going forward, Mississippi agencies—and DOM in particular—must carefully assess whether long-standing internal practices, even if unwritten, have effectively become “methods and standards” that cannot be changed without both a clear explanation and, where reimbursement is affected, public notice. Providers, meanwhile, are encouraged—and now legally incentivized—to document and, when necessary, rely upon the agency’s historical course of dealing, not just its written manuals.

The dissent’s concerns underscore that this evolution comes with trade-offs: increased protection for provider reliance and process fairness on one side; reduced agency flexibility and potential exposure of taxpayers to the cost of past misapplications on the other. The balance struck here reflects a strong judicial insistence on procedural regularity and transparency in the complex and high-stakes world of Medicaid reimbursement.