Armstrong Cnty. Mem'l Hosp. v. Dep't of Pub. Welfare of Commonwealth

• Decision Date: 20 May 2013
• Citation: 67 A.3d 160
• Parties: ARMSTRONG COUNTY MEMORIAL HOSPITAL and Monongahela Valley Hospital, Inc., Petitioners v. The DEPARTMENT OF PUBLIC WELFARE OF the COMMONWEALTH OF PENNSYLVANIA, Respondent.
• Court: Pennsylvania Commonwealth Court

67 A.3d 160

ARMSTRONG COUNTY MEMORIAL HOSPITAL and Monongahela Valley Hospital, Inc., Petitioners

v.The DEPARTMENT OF PUBLIC WELFARE OF the COMMONWEALTH OF PENNSYLVANIA, Respondent.

Commonwealth Court of Pennsylvania.

Argued April 17, 2013.

Decided May 20, 2013.

Barbara Blackmond, Pittsburgh, for petitioners.

Jason W. Manne, Deputy Chief Counsel, Pittsburgh, for respondent.

Philip H. Lebowitz and David E. Loder, Philadelphia, for intervenor Hospital & Healthsystem Association of Pennsylvania.

BEFORE: PELLEGRINI, President Judge, McGINLEY, Judge, COHN JUBELIRER, Judge, LEAVITT, Judge, BROBSON, Judge.

OPINION BY Judge BROBSON.

On July 2, 2012, Petitioners Armstrong County Memorial Hospital and Monongahela Valley Hospital, Inc. (Hospitals) commenced this action against Respondent Department of Public Welfare of the Commonwealth of Pennsylvania (DPW) by filing a Petition for Review (Petition) addressed to this Court's original jurisdiction. By Order dated August 16, 2012, this Court granted intervenor status to the Hospital and Healthsystem Association of Pennsylvania (HAP), for purposes of allowing HAP to oppose the Hospitals' Petition. Presently before the Court for disposition are the preliminary objections of DPW and HAP to the Petition.

I. BACKGROUND

A. The Petition

As this Court explained more thoroughly in Commonwealth v. TAP Pharmaceutical Products, Inc., 36 A.3d 1112 (Pa.Cmwlth.2011), DPW is the state agency that administers the Commonwealth's Medicaid program. “Medicaid is a joint state-federal funded program for medical assistance in which the federal government approves a state plan for the funding of medical services for the needy and then subsidizes a significant portion of the financial obligations the state agreed to assume.” TAP, 36 A.3d at 1122. DPW delivers Medicaid benefits in Pennsylvania through two (2) payment systems—(1) “fee-for-service,” where the provider of the care is paid on a claim basis; and (2) “managed care,” where an intermediary managed care organization (MCO), under contract with DPW, is paid on a monthly, fixed-fee basis per enrollee. Id. at 1123. Because under the managed care model Medicaid funds go directly to the MCO and not to the provider of the healthcare service, the MCO pays the provider pursuant to the terms of an agreement between the MCO and the provider.

As alleged in the Petition, Hospitals have provider agreements with DPW to provide health care services to patients covered under the managed care portion of DPW's Medicaid program. Consequently, Hospitals also have contracts with certain MCOs, through which Hospitals are paid for the services they provide to the managed care Medicaid recipients.

In their Petition, Hospitals challenge certain aspects of the implementation of the Act of July 9, 2010, P.L. 336 (Act 49).¹ Act 49 amended the Public Welfare Code, Act of June 13, 1976, P.L. 31, as amended,62 P.S. §§ 101– 1503 (Code). Relevant to this action are Section 443.1 of the Code, 62 P.S. § 443.1, and Article VIII–G of the Code, 62 P.S. §§ 801–G— 816–G, as they apply to the managed care side of the DPW Medicaid program.

Section 443.1(1.1) of the Code, which was amended by Act 49 and also amended thereafter, addresses, inter alia, payment methods and standards by which DPW is to calculate payments to acute care hospitals for inpatient services provided on or after July 1, 2010, on a fee-for-service basis. One of those methods and standards is a requirement that DPW use the “All Patient Refined–Diagnosis Related Group,” or APR/DRG system, for purposes of classifying inpatient stays into diagnosis related groups, or DRGs. DPW then assigns base rates to each DRG, which are then used to arrive at the appropriate fee-for-service reimbursement rates for hospitals. By its own terms, the provisions of paragraph (1.1) only apply to the Commonwealth fiscal years in which DPW imposes an assessment authorized under new Article VIII–G of the Code, added by Act 49, referred to as the Quality Care Assessment (Assessment). Under Article VIII–G, DPW is authorized to impose the Assessment for fiscal years 2010–2011, 2011–2012, and 2012–2013. Article VIII–G expires at the end of the 2012–2013 fiscal year (June 30, 2013). Section 815–G of the Code, 62 P.S. § 815–G.

With respect to managed care, Section 443.1(1.2) of the Code includes certain provisions governing the rates that MCOs pay hospitals. As amended by Act 49, paragraph (1.2), like paragraph (1.1), applied to every fiscal year in which DPW imposed the Assessment. Paragraph (1.2), however, has since been amended by the Act of June 30, 2011, P.L. 89, limiting the application of paragraph (1.2) to only the Commonwealth's fiscal year 2010–2011. Today, Section 443.1(1.2) provides, in relevant part:

(1.2) Subject to section 813–G, for inpatient acute care hospital services provided under the physical health medical assistance managed care program during State fiscal year 2010–2011, the following shall apply:

(i) For inpatient hospital services provided under a participation agreement between an inpatient acute care hospital and a medical assistance managed care organization in effect as of June 30, 2010, the medical assistance managed care organization shall pay, and the hospital shall accept as payment in full, amounts determined in accordance with the payment terms and rate methodology specified in the agreement and in effect as of June 30, 2010, during the term of that participation agreement. If a participation agreement in effect as of June 30, 2010, uses the department fee for service DRG rate methodology in determining payment amounts, the medical assistance managed care organization shall pay, and the hospital shall accept as payment in full, amounts determined in accordance with the fee for service payment methodology in effect as of June 30, 2010, including, without limitation, continuation of the same grouper, outlier methodology, base rates and relative weights, during the term of that participation agreement.

(ii) Nothing in subparagraph (i) shall prohibit payment rates for inpatient acute care hospital services provided under a participation agreement to change from the rates in effect as of June 30, 2010, if the change in payment rates is authorized by the terms of the participation agreement between the inpatient acute care hospital and the medical assistance managed care organization. For purposes of this act, any contract provision that provides that payment rates and changes to payment rates shall be calculated based upon the department's fee for service DRG payment methodology shall be interpreted to mean the department's fee for service medical assistance DRG methodology in place on June 30, 2010.

(iii) If a participation agreement between a hospital and a medical assistance managed care organization terminates during a fiscal year in which an assessment is imposed under Article VIII–G prior to the expiration of the term of the participation agreement, payment for services, other than emergency services, covered by the medical assistance managed care organization and rendered by the hospital shall be made at the rate in effect as of the termination date, as adjusted in accordance with subparagraphs (i) and (ii), during the period in which the participation agreement would have been in effect had the agreement not terminated. The hospital shall receive the supplemental payment in accordance with subparagraph (v).

(iv) If a hospital and a medical assistance managed care organization do not have a participation agreement in effect as of June 30, 2010, the medical assistance managed care organization shall pay, and the hospital shall accept as payment in full, for services, other than emergency services, covered by the medical assistance managed care organization and rendered during a fiscal year in which an assessment is imposed under Article VIII–G, an amount equal to the rates payable for the services by the medical assistance fee for service program as of June 30, 2010. The hospital shall receive the supplemental payment in accordance with subparagraph (v).

(v) The department shall make enhanced capitation payments to medical assistance managed care organizations exclusively for the purpose of making supplemental payments to hospitals in order to promote continued access to quality care for medical assistance recipients. Medical assistance managed care organizations shall use the enhanced capitation payments received pursuant to this section solely for the purpose of making supplemental payments to hospitals and shall provide documentation to the department certifying that all funds received in this manner are used in accordance with this section. The supplemental payments to hospitals made pursuant to this subsection are in lieu of increased or additional payments for inpatient acute care services from medical assistance managed care organizations resulting from the department's implementation of payments under paragraph (1.1)(ii). Medical assistance managed care organizations shall in no event be obligated under this section to make supplemental or other additional payments to hospitals that exceed the enhanced capitation payments made to the medical assistance managed care organization under this section. Medical assistance managed care organizations shall not be required to advance the supplemental payments to hospitals authorized by this subsection and shall only make the supplemental payments to hospitals once medical assistance managed care organizations have received the enhanced capitation payments from the department.

(vi) Nothing in this subsection shall prohibit an inpatient acute care hospital and a medical assistance managed care organization from executing a new participation agreement or amending an existing participation agreement on or after July 1, 2010, in which they agree to payment terms that would result in payments that are different than the payments determined in...