Murphy Nursing Home, Inc. v. Rate Setting Commission

• Decision Date: 27 December 1973
• Citation: 305 N.E.2d 837,364 Mass. 454
• Parties: MURPHY NURSING HOME, INC., et al. 1 v. RATE SETTING COMMISSION et al. 2 (and a companion case 3 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 837

305 N.E.2d 837

364 Mass. 454

MURPHY NURSING HOME, INC., et al. ¹ v. RATE SETTING COMMISSION et al. ² (and a

companion case ³).

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Oct. 2, 1973.

Decided Dec. 27, 1973.

Evan Y. Semerjian, Boston, for Murphy Nursing Home, Inc. and others.

David L. Whitney, Boston, for Daniels Nursing Home, Inc. and others.

Timothy F. O'Leary, Sp. Asst. Atty. Gen., for the Rate Setting Commission.

Before TAURO, C.J., and QUIRICO, BRAUCHER, HENNESSEY and KAPLAN, JJ.

BRAUCHER, Justice.

These cases, brought by a number of nursing homes, call for judicial review of the rules and regulations (the 1969 Regulations) established by the Rate Setting Commission (commission) on June 25, 1969, to govern the reimbursement of nursing homes for the care of publicly aided patients. The plaintiffs also challenge the constitutionality of the legislative 'rate freeze' provided for in St. 1969, c. 800, § 6. We hold that the 1969 Regulations constitute a valid exercise of the authority of the commission and that the rate freeze is not unconstitutional either on its face or as applied.

Both cases began before a single justice in the county court as bills for declaratory relief under G.L. c. 30A, § 7, and G.L. c. 231A. They were referred to a master on October 28, 1969, by a single justice of this court. The master's report was confirmed by consent on November 15, 1972, and on January 25, 1973, a single justice reported the cases for determination by the full court on the pleadings, the master's report, the stipulations of the parties and the exhibits.

We summarize the setting as it appears from the master's report. Facts relating to particular issues will be stated in connection with our discussion of those issues. For a period of approximately ten years, ending in 1968, nursing homes were reimbursed by the Commonwealth for publicly aided patients on a single Statewide flat rate intended to cover all costs plus an element of profit. On January 5, 1968, the Board of Rate Setting, predecessor of the commission, adopted rules and regulations (the 1968 Regulations) for the determination of rates of payment to convalescent and nursing homes for 1968. On June 25, 1969, the commission adopted the 1969 Regulations, effective retroactively to January 1, 1969. The cost reimbursement system reflected in the 1969 Regulations was first adopted in the 1968 Regulations.

There are over 25,000 publicly aided patients in nursing homes in Massachusetts, representing 80% of all partients in nursing homes. The Department of Public Health licenses nursing homes by twenty-bed segments, and it generally takes six to nine months for a new nursing home to become fully licensed. The average annual rate of occupancy of nursing homes in full operation is approximately 94% of licensed capacity, and 100% occupancy is virtually impossible to achieve. Use of the 1969 Regulations to compute rates of reimbursement would result in a saving to the Commonwealth of approximately $4,000,000 as compared with use of the 1968 Regulations.

The governing statute, G.L. c. 7, § 30L, as appearing in St.1968, c. 492, § 3 (later amended by St.1970, c. 714), provides that the commission 'shall have the sole responsibility for establishing fair and reasonable rates of payment to be used by governmental units . . . and for establishing fair and reasonable charges to be used by state institutions for general health supplies, care, services and accommodations.' It is to 'determine . . . the rates to be paid by each governmental unit to providers of health services . . .. Each rate established by the commission shall be deemed a regulation and shall be reviewable as hereinafter provided. The commission shall promulgate rules and regulations for the administration of its duties and the determination of rates as herein required subject to the procedures prescribed by chapter thirty A.'

1. Procedure. These cases are properly before us under G.L. c. 30A, § 7, and c. 231A. Massachusetts Gen. Hosp. v. Rate Setting Commn., 359 Mass. 157, 163--166, 269 N.E.2d 78 (1971) Compare the procedure under the predecessor statute, G.L. c. 7, § 30L, as appearing in St.1963, c. 809, § 1. PALM MANOR NURSING HOME, INC. V. RATE SETTING COMMN., MASS., 270 N.E.2D 823,^A and cases cited. The fact that more than four years have elapsed since the cases began suggest that some better mode of proceeding could be found. Commonly cases involving the trial of contested issues of fact are transferred by the single justice to the Superior Court under G.L. c. 211, § 4A. The present cases were instead referred to a master. Evidentiary hearings before the master extended only eleven days and ended in June, 1970. Much of the delay was occasioned by illnesses of one of the stenographers and of counsel and by proceedings subsequent to the filing of the master's report. Nevertheless, the cases, while not as protracted as some, illustrate the fact that ultimate disposition is often delayed rather than accelerated by reference to a master. See O'BRIEN V. DWIGHT, MASS., 294 N.E.2D 363^B.

2. Retroactivity. The 1968 Regulations provided (par.14) that the permanent 1968 rate for each nursing home would continue in effect in 1969 until a new permanent rate was estaglished for 1969. Statute 1968, c. 492, § 25, effective September 12, 1968, provided that all rates, classifications and other regulations then in effect should remain in effect 'until superseded or repealed by the rate setting commission in accordance with law.' On January 6, 1969, the commission established 'tentative rates' pursuant to the 1968 Regulations and so notified the plaintiffs and all other nursing homes by a form letter which concluded, 'The permanent 1969 rate shall be made retroactive to January 1, 1969.' The 1969 Regulations, promulgated June 25, 1969, provided explicitly (par.1) that 1969 rates 'will be retroactive to January 1, 1969.'

The plaintiffs in the companion case contend that the retroactive feature of the 1969 Regulations was not 'in accordance with law' because under G.L. c. 30A, § 5, inserted by St.1954, c. 681, § 1 (before the effective date of St.1969, c. 808, § 5), regulations were to be filed with the Secretary of State and became effective 'upon filing, unless a later date is required by any law or is specified by the agency in the regulation' (emphasis supplied). They contend that the result was to confiscate their property, citing Campbell v. Boston, 290 Mass. 427, 430, 195 N.E. 802 (1935), and Bernhardt v. Atlantic Fin. Corp., 311 Mass. 183, 191, 40 N.E.2d 713 (1942).

We reject these contentions. Before the 1969 amendment, G.L. c. 30A, § 5, required that regulations be filed with the Secretary of State, and until properly filed the regulations were not effective. Kneeland Liquor, Inc. v. Alcoholic Beverages Control Commn., 345 Mass. 228, 235, 186 N.E.2d 593 (1962). Massachusetts Gen. Hosp. v. Commissioner of Pub. Welfare, 346 Mass. 739, 740, 196 N.E.2d 181 (1964). But in a proper case a regulation could be filed to redetermine rates for past transactions. Massachusetts Gen. Hosp. v. Cambridge, 347 Mass. 519, 522--524, 198 N.E.2d 889 (1964). A case where tentative rates have been set pending the availability of reliable cost data is such a proper case. EMPLOYERS' COMMERCIAL UNION INS. CO. V. COMMISSIONER OF INS., MASS., 283 N.E.2D 849.^C See Massachusetts Gen. Hosp. v. Commissioner of Admn., 353 Mass. 369, 374, 231 N.E.2d 543 (1967). The Constitution of the United States interposes no barrier to retroactive redetermination of provisional or tentative rates. Great No. Ry. v. Sunburst Oil & Ref. Co., 287 U.S. 358, 362, 53 S.Ct. 145, 77 L.Ed. 360 (1932).

3. The rate freeze. Statute 1969, c. 800, § 6, effective November 22, 1969, provided that 'the fee schedules in effect on January 1, 1969, for medical care and assistance provided under the state (Medicaid) plan . . . shall continue in effect until June 30, 1970, insofar as such action does not violate federal law.' On September 11, 1969, the commission sent the Commissioner of Public Welfare a letter interpreting the 'section 6 rate freeze' as intended 'to apply to all Medicaid vendors,' and to prescribe payment 'in accordance with the fee schedules prescribing payment for the same or comparable services if rendered on January 1, 1969.' Under G.L. c. 118E, § 6, inserted by St.1969, c. 800, § 1, Medicaid vendors included hospitals furnishing inpatient services and 'skilled nursing homes,' but not unskilled nursing homes (also called 'intermediate care facilities'). On October 31, 1969, the United States Department of Health, Education and Welfare (HEW) determined that the rate freeze was invalid with respect to inpatient health services. See Catholic Medical Center of Brooklyn & Queens, Inc. v. Rockefeller, 305 F.Supp. 1268 (E.D.N.Y. 1969), affd., 430 F.2d 1297 (2d Cir. 1970), app. dism. sub nom., Rockefeller v. Catholic Medical Center of Brooklyn & Queens, Inc., 400 U.S. 931, 91 S.Ct. 246, 27 L.Ed.2d 262, holding invalid with respect to inpatient hospital services a similar rate freeze in New York. The commission then instructed the Commissioner of Public Welfare not to apply the rate freeze to inpatient hospital services, but to continue to apply it to skilled nursing homes. HEW approved the change on December 12, 1969.

The master found that a home which employs a full time registered nurse for forty hours a week as director of nurses qualifies as a 'skilled nursing home,' and that one which does not is classified as an unskilled nursing home. Both types of nursing homes just be licensed by the Department of Public Health, and both receive reimbursement for publicly aided patients. There was no evidence to explain or support the distinction between skilled and unskilled nursing homes in the application of the rate freeze, but there was no evidence on which he could conclude that the distinction was irrational or...