Addison Gilbert Hosp. v. Rate Setting Com'n

• Decision Date: 23 August 1983
• Parties: , 2 Soc.Sec.Rep.Ser. 1421 ADDISON GILBERT HOSPITAL et al. 1 v. RATE SETTING COMMISSION et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 424

453 N.E.2d 424

390 Mass. 17, 2 Soc.Sec.Rep.Ser. 1421

ADDISON GILBERT HOSPITAL et al. ¹ v. RATE SETTING COMMISSION et al. ²

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued March 11, 1983.

Decided Aug. 23, 1983.

William L. Pardee, Asst. Atty. Gen., for defendants.

Mitchell H. Kaplan, Boston (Mark A. Borreliz and James H. Wexler, Boston, with him), for plaintiffs.

Before HENNESSEY, C.J., and WILKINS, LIACOS, ABRAMS and O'CONNOR, JJ.

ABRAMS, Justice.

The plaintiffs, twenty-six nonprofit hospitals located throughout the Commonwealth, brought this action to challenge the validity of a regulation promulgated by the Rate Setting Commission. 114.1 Code Mass.Regs. § 3.06 (1981). The contested regulation establishes a fixed reimbursement rate for each "administratively necessary day," see note 6, infra, spent by a Medicaid patient in a hospital in the Commonwealth. A Superior Court judge entered partial summary judgment for the hospitals on the issue of liability. The judge concluded that the regulation was invalid from February 1, 1981, its effective date, to August 13, 1981, when it was superseded by Federal law. See Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35, § 2173, 95 Stat. 357, 808 (1981). ³ At the defendants' request the judge reported his interlocutory order to the Appeals Court. We allowed the defendants' application for direct appellate review, and we affirm.

We summarize the statutory framework within which the challenged regulation was enacted. The Medicaid program provides Federal medical assistance to participating States. 42 U.S.C. §§ 1396 et seq. (1976 & Supp. III 1979). At the Federal level, the program is administered through the Department of Health and Human Services. Massachusetts participates in the program, G.L. c. 118E, having designated the Department of Public Welfare (department) to ensure that the program is administered in accordance with Federal law. See G.L. c. 118E, §§ 4, 6. Under the Massachusetts regulatory structure, the Rate Setting Commission establishes rates for payment to Medicaid providers, which include hospitals. G.L. c. 6A, § 32.

As part of a State's participation in the Medicaid program, it must adopt a "State plan," which must comply with Federal law and which must be approved by the Secretary of Health and Human Services. 42 U.S.C. § 1396a(b). As part of its plan, the State must establish rates for "inpatient hospital services." These rates, unlike other portions of the plan, must receive the approval of the Secretary of Health and Human Services before they may be modified. 42 U.S.C. § 1396a(a)(13)(D). 42 C.F.R. § 447.261(a). ⁴ In addition, the reimbursement paid to the providers of inpatient hospital services must be for the reasonable cost of those services, not to exceed the calculations for the cost of those services under the Medicare program in 42 U.S.C. § 1395x(v). 42 U.S.C. § 1396a(a)(13)(D). 42 C.F.R. § 447.261.

The regulation at issue, 114.1 Code Mass.Regs. § 3.06, was promulgated by the Rate Setting Commission in 1980, to be effective on February 1, 1981. The regulation sets the rate at which hospitals are to be reimbursed for their patients who are on "administratively necessary day" status. These patients are originally admitted to hospitals to receive care for their acute conditions, which could only be provided in the hospital setting. When their conditions change so that the medical services they require can be administered in a lower level facility, such as a nursing home, the patients are usually released from the hospital. However, frequently no nursing home beds are available for these patients, and the hospital is forced to keep them. The days during which the hospital continues to provide care for these patients are known as "administratively necessary days." ⁵

The reimbursement rates for administratively necessary days have been changed several times in the last decade. In 1977, prior to the issuance of the contested regulation, the Legislature directed reimbursement for all administratively necessary days unless an available bed in an appropriate facility could be located within a reasonable distance. St.1977, c. 363A, § 35. Thus, reimbursement commencing on October 1, 1977, was at a "routine rate," which compensated each hospital for its cost of routine, rather than ancillary, hospital services.

In December, 1980, after a hearing by the Rate Setting Commission, the department submitted a proposed amendment to the Massachusetts State plan to the Regional Medicaid Director for the Department of Health and Human Services for approval, reserving its right to contest the Federal government's position that such approval was required. The new regulation required reimbursement for administratively necessary days at a flat rate of $70 a day for all hospitals. See 114.1 Code Mass.Regs. § 3.06. The rate was to be effective on February 1, 1981, despite the department's failure to obtain approval by the Secretary of the Department of Health and Human Services. ⁶

The question in this case is whether the care provided by hospitals to patients on administratively necessary day status is considered to be "inpatient hospital services" under 42 U.S.C. § 1396a(a)(13)(D): If so, the rates for such care must be approved by the Secretary of Health and Human Services. We conclude that care provided for administratively necessary days constitutes inpatient hospital services. Thus, we affirm the judge's decision that the $70 rate is invalid because it was not approved by the Secretary. ⁷

Our analysis of inpatient hospital services must begin with Federal Medicaid regulation 42 C.F.R. § 440.10 (1981), which defines inpatient hospital services to be those services which "are ordinarily furnished in a hospital for the care and treatment of an inpatient," and are provided "under the direction of a physician or dentist." We must construe the regulation according to its plain meaning. Treasurer & Receiver Gen. v. John Hancock Mut. Life Ins. Co., 388 Mass. 410, 422, 446 N.E.2d 1376 (1983). We conclude that administratively necessary days are plainly encompassed within the regulatory language. The services provided to those patients include services typically or "ordinarily" provided to all inpatients of hospitals, such as bed, board, and basic nursing care. In addition, patients on administratively necessary day status must remain in the hospital until a more appropriate placement is found because they still require medical care. Thus, we assume the care they receive is provided under a physician's direction. See Commonwealth v. Temple Univ. of the Commonwealth System of Higher Educ., 21 Pa.Cmwlth. 162, 166, 343 A.2d 701 (1975).

The defendants contend that it is "deceptively simple" to argue that because administratively necessary days are days in hospitals, they represent inpatient hospital services. ⁸ However, we believe that there is no reason to make the meaning of those services more complicated than need be. Thus, we disagree with the defendants' assumption that because administratively necessary day care could be provided more economically by a nursing home, it is not appropriately rendered by a hospital, and thus does not constitute inpatient hospital services.

The defendants attempt to bolster their argument by citing the Professional Standards Review Organization (PSRO) laws, 42 U.S.C. §§ 1320c et seq. (1976). Under those laws, one responsibility of a PSRO is to ensure that medical care provided under Medicaid is medically necessary and cannot be provided more economically in a lower level facility. See 42 U.S.C. § 1320c-4(a)(1). Since administratively necessary days can be effectively provided by a lower level facility, the defendants argue they are not appropriately rendered in a hospital and do not constitute inpatient hospital services.

However, under another PSRO provision, 42 U.S.C. § 1320c-9(a)(2), a patient may continue to remain in a hospital on inpatient status if medically necessary and either the care cannot be provided in a lower level facility or there is no such facility in the area available to provide care to the patient. The defendants argue that this provision is designed for hospital compliance with tort law, rather than to make such care reimbursable. That limitation is not found in the language of the statute. The defendants' analysis, moreover, ignores the need to interpret the statute harmoniously. See Peters v. Michienzi, 385 Mass. 533, 537, 432 N.E.2d 696 (1982). The defendants cannot claim on the one hand that the PSRO laws define what is an inpatient hospital service, and on the other hand ignore provisions of that law which undermine their position.

In addition, Congress has indicated that administratively necessary days were included within inpatient hospital services at the time in question. In 1980, Congress enacted a law authorizing hospital reimbursement of administratively necessary days at lower than usual rates, equivalent to rates paid to skilled nursing facilities and intermediate care facilities. These lower rates were instituted for all hospitals with occupancy rates of less than eighty per cent. See Medicare & Medicaid Amendments of 1980, Pub.L. No. 96-499, § 902, 94 Stat. 2609, 2613 (1980). However, by its very terms, the statute allowed payments for administratively necessary days at inpatient hospital services rates to "continue" in those hospitals with greater than eighty per cent occupancy. Id. It is therefore obvious that Congress intended that hospitals should receive inpatient hospital services rates for administratively necessary day care under the Medicaid program. ⁹ Since the Secretary did not promulgate regulations, the 1980 statute did not become effective, and inpatient hospital services rates continued until 1981, when a new statute was passed. See Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35, § 2173, 95 Stat. 357, 808-809 (1981).

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