Agency Can Hear Rate Appeal That Challenges Its Own Interpretation, Not the Regulation Itself: Executive Office of Health and Human Services v. Linda Manor Extended Care (AC 25-P-1194, September 29, 2026)

A nursing home wins a twenty-four-year fight over $134,000 in disputed Medicaid reimbursements. The Appeals Court holds that the Division of Administrative Law Appeals has jurisdiction to decide whether the Executive Office of Health and Human Services misread its own regulation, and that DALA did not abuse its discretion when it refused to dismiss the appeal for stagnation.

The decision carves out a narrow but important principle: DALA can resolve disputes about what an unambiguous regulation means, even if the agency’s interpretation applies across the board. Such interpretive challenges do not trigger the “special circumstances” test that bars most frontal attacks on rate-setting rules.

The Facts

Linda Manor Extended Care is a skilled nursing facility that serves Medicaid patients. In 1998, it filed a cost report with EOHHS detailing its expenses, including direct restorative therapy costs (one-on-one physical, occupational, and speech therapy) and indirect restorative therapy costs (staff training, discharge planning, and the like). EOHHS used that report to set Linda Manor’s payment rates for 2000, 2001, and the first half of 2002.

Linda Manor filed an administrative appeal in April 2000, challenging the rates EOHHS had set. While the appeal was pending, EOHHS hired an outside accounting firm to audit the 1998 cost report. The auditors asked for documentation. Linda Manor produced detailed logs of its direct therapy sessions but did not maintain separate logbooks for indirect therapy. Instead, it submitted invoices from its contract vendor, records of total therapy expenditures, and documents describing the nature of the indirect services. It argued that the indirect costs could be calculated by subtracting the documented direct costs from the total.

The auditors were unpersuaded. They recommended disallowing one hundred percent of Linda Manor’s indirect therapy costs on the ground that the facility “[n]eed[ed] indirect logs.” EOHHS adopted the recommendation, applying what it characterized as a “universally applicable” interpretation of its record-keeping regulation. EOHHS then recalculated Linda Manor’s rates and clawed back $134,260.

In July 2005, Linda Manor moved to amend its administrative complaint to challenge the disallowance. The appeal then went silent. For seventeen years, no party took any action. In 2022, a DALA magistrate contacted Linda Manor to inquire about the status of various pending appeals. Linda Manor expressed its intent to proceed on some and to withdraw others. In September 2023, DALA issued an interim order directing the parties to file memoranda. The parties did so, and in April 2024 they agreed to submit the appeal on the papers.

EOHHS moved for an order to show cause why the appeal should not be dismissed for lack of prosecution. It also argued that DALA lacked jurisdiction to hear the appeal.

The Issue

The threshold question was jurisdictional. DALA has authority under G. L. c. 118E, § 13E, to hear appeals from individual rate determinations, but the Supreme Judicial Court has held that DALA “may not entertain substantive attacks on the rate regulations themselves.” The courts have drawn the line by asking whether the provider can show “special circumstances” that distinguish its situation from that of other providers in the same class, and whether those circumstances resulted from something other than the provider’s voluntary business decisions.

Linda Manor could not satisfy either prong. EOHHS applied the same interpretation of the record-keeping rule to every facility. Linda Manor’s circumstances were not unique. So EOHHS argued that DALA had no authority to hear the appeal, and that Linda Manor’s only recourse was a declaratory judgment action under G. L. c. 30A, § 7.

The second issue was whether DALA abused its discretion by declining to dismiss the appeal. EOHHS pointed to the two-decade gap in activity and argued that Linda Manor’s inaction demonstrated an intention not to prosecute.

What the Court Held

The Appeals Court reversed the Superior Court and affirmed DALA’s decision. The court held that DALA has jurisdiction to hear interpretive challenges, and that the “special circumstances” test does not apply when a provider disputes the meaning of a regulation rather than attacking its substantive validity.

On the dismissal question, the court held that DALA’s governing regulation gave the presiding officer discretion to issue an order to show cause, not a duty to do so. Because Linda Manor complied with each applicable regulation and order, and because DALA issued no directive requiring affirmative action during the years of silence, the magistrate acted within his discretion.

The Reasoning

The court began with the policy behind the “special circumstances” test. Agencies promulgate rate-setting regulations that apply to entire classes of providers. If every provider could challenge its individual rate by attacking the substantive adequacy of the underlying regulation, the result would be backdoor invalidation of duly promulgated rules. The two-prong test prevents that. It steers substantive challenges to the declaratory judgment route and reserves DALA’s docket for appeals that turn on a provider’s particular facts.

But Linda Manor was not challenging the substantive validity of the regulation. The regulation, 114.2 Code Mass. Regs. § 6.06(2)(b), requires facilities to keep “accurate, detailed and original financial records to substantiate reported costs for a period of at least five years.” The dispute was about what counts as sufficient substantiation. EOHHS read the regulation to require logbooks specifically documenting indirect therapy. Linda Manor read it to permit the “backing out” method, which was a familiar approach in the industry. That is a straightforward question of interpretation. It assumes the regulation’s validity and advances a competing reading. It does not threaten to unravel the rate-setting scheme.

The court distinguished the line of cases applying the “special circumstances” test. Those cases involved either frontal attacks on class-based rate regulations or challenges grounded in a provider’s unique operational facts. Here, the only question was what the regulation means. The court cautioned that the holding is narrow: if a provider’s appeal presents both an interpretive dispute and facts or arguments that more clearly implicate the framework of the special-circumstances cases, the provider must still satisfy the two-prong test.

On the dismissal question, the court applied the highly deferential arbitrary-or-capricious standard. The governing regulation, 801 Code Mass. Regs. § 1.01(7)(g)(2), provides that the presiding officer “may” initiate an order to show cause when the record “indicates an intention not to continue the prosecution of a claim.” The court read “may” as permissive, not mandatory. Linda Manor complied with each order DALA issued. EOHHS did not cite any regulatory violation in its initial show cause motion. DALA issued no orders requiring Linda Manor to act during the long dormancy. The court also noted that EOHHS itself took no action for twenty-three years, and that EOHHS did not demonstrate prejudice. The substantive issue was a question of regulatory interpretation, not a fact-intensive inquiry requiring witness testimony.

Why It Matters

The decision clarifies the outer boundary of DALA’s jurisdiction. Providers may not use DALA appeals to mount substantive attacks on rate-setting regulations, but they may ask DALA to resolve disputes about what an unambiguous regulation means. That distinction has practical consequences. Declaratory judgment actions are expensive and slow. Administrative appeals, when DALA moves them along, are faster and cheaper. Providers now have a clear path to challenge interpretive overreach without satisfying the “special circumstances” test.

The dismissal holding is a reminder that agencies have broad discretion to manage their dockets, but also that discretion cuts both ways. DALA’s inaction for seventeen years did not compel dismissal, in part because DALA issued no orders during that time and the provider complied when DALA finally acted. Agencies that permit appeals to languish may find it difficult to invoke failure-to-prosecute as a ground for dismissal when they themselves contributed to the delay.

For practitioners, the case is a warning and an opportunity. The warning: do not let appeals sit. The opportunity: if an agency applies a strained or erroneous interpretation of its own regulation, you do not need to show that your client’s circumstances are unique. You need to show only that the regulation is unambiguous and that the agency got it wrong.

Read the full opinion: Executive Office of Health and Human Services v. Linda Manor Extended Care (AC-25-P-1194, September 29, 2026).