Griffin Hosp. v. Commission on Hosp. and Health Care

• Decision Date: 15 July 1986
• Citation: 200 Conn. 489,512 A.2d 199
• Court: Connecticut Supreme Court
• Parties: , Medicare & Medicaid Guide P 35,910 The GRIFFIN HOSPITAL v. COMMISSION ON HOSPITALS AND HEALTH CARE.

Page 199

512 A.2d 199

200 Conn. 489, Medicare & Medicaid Guide P 35,910

The GRIFFIN HOSPITAL v. COMMISSION ON HOSPITALS AND HEALTH CARE.

Supreme Court of Connecticut.

Argued March 13, 1986.

Decided July 15, 1986.

A. Searle Pinney, with whom were Jeffrey B. Sienkiewicz, Michael S. McKenna, and, on brief, Alfred P. Forino, Danbury, for appellant-appellee (plaintiff)

Thomas J. Ring, Asst. Atty. Gen., with whom were Richard J. Lynch, Asst. Atty. Gen., and, on brief, Joseph I. Lieberman, Atty. Gen., and Maite Barainca, Asst. Atty. Gen., for appellee-appellant (defendant).

Before HEALEY, SHEA, DANNEHY, CALLAHAN and JACOBSON, JJ.

DANNEHY, Justice.

On September 15, 1983, the defendant commission on hospitals and health care (commission), pursuant to its authority under General Statutes § 19a-156(a), ordered the plaintiff, Griffin Hospital (hospital), to adopt a budget for the 1984 fiscal year. The budget ordered by the commission authorized revenues, operating expenses and capital expenditures in amounts substantially lower than those proposed by the hospital in a budget submitted to the commission on July 5, 1983. On September 29, 1983, the hospital appealed from the commission's September 15, 1983 budget order, and the matter was referred to Hon. Thomas J. O'Sullivan, state trial referee, who, exercising the powers of the Superior Court, rendered judgment on June 19, 1984. The referee, in a detailed memorandum of decision, upheld for the most part the budget reductions ordered by the commission, but modified the commission's order in several important respects. Neither party is satisfied with the judgment of the referee. The plaintiff has appealed from that judgment, and the defendant has cross appealed.

We begin with a brief outline of the facts. The hospital filed its proposed operating and capital expenditures budget with the commission on July 5, 1983. The hospital's budget proposed net patient revenues of $39,755,000, net operating expenses of $37,272,000, and capital expenditures of $1,483,668. On July 15, 1983, the commission notified the hospital that it had rejected the proposed budget, and that it would conduct a public hearing "to allow the hospital the opportunity to present evidence in support of the proposed fiscal 1984 operating and capital budget." The notice also stated that the hospital should present its evidence at the public hearing "in a manner ... consistent with the provisions of the commission's regulations." On August 8, 19 and 29, 1983, the commission conducted public hearings on the hospital's budget for the 1984 fiscal year. On September 15, 1983, it issued its decision and order requiring the hospital to adopt the budget as modified by the commission.

The budget ordered by the commission for the 1984 fiscal year authorized net patient revenues of $34,197,000, net operating expenses of $33,131,000, and capital expenditures of $411,800. The authorized figures represented reductions of $5,558,000, $4,141,000 and $1,071,868 respectively, in the amounts originally requested by the hospital in its proposed budget submitted on July 5, 1983. In its appeal to the Superior Court, the hospital challenged the reductions in its budget ordered by the commission on various statutory and constitutional grounds. The trial referee accepted some of the hospital's claims and rejected others. We now turn to the specific claims raised in the appeal before us.

I

GRIFFIN HOSPITAL APPEAL

A

preemption

The first of the hospital's contentions is that the commission's budget order conflicts with federal law and is therefore preempted under the supremacy clause. The hospital claims that the September 15, 1983 budget order required it to use federal medicare reimbursements to subsidize the health care costs of nonmedicare patients. Under the medicare program, the federal government reimburses participating hospitals for services provided to medicare patients according to a set of Preemption analysis has two prongs. In order to conclude that state regulatory action has been preempted, it must be determined that (1) Congress has evidenced an intent to occupy the field or (2) the state regulation actually conflicts with federal law. Silkwood v. Kerr-McGee Corporation, 464 U.S. 238, 248, 104 S.Ct. 615, 621, 78 L.Ed.2d 443 (1984); Times Mirror Co. v. Division of Public Utility Control, 192 Conn. 506, 510-11, 473 A.2d 768 (1984). The hospital does not claim that an actual conflict exists between the commission's budget order and the federal medicare reimbursement system. Rather, it contends that "Congress intended to preempt the state from regulating the field of Medicare cost containment and reimbursement." We do not agree. We fail to see how the federal method of medicare reimbursement can be said to preempt the state from regulating overall costs at individual medical facilities. The commission's budget order does not purport to restrict the number of medicare patients actually treated by the hospital, or the federal level of reimbursement for any of the services provided. The "profits" anticipated by the hospital from its medicare operations under the commission's budget are attributable, in part, to the level of overall operating expenses set by the commission. If the hospital were allowed to operate at the expense level originally proposed in its July 5, 1983 budget, then its medicare "profits" would quickly disappear. Since any adjustment by the commission of overall expenses would necessarily affect the level of medicare "profits," we believe that it has the authority to regulate such "profits" to the extent that they exist.

                preestablished rates, regardless of the actual cost to the hospital of the particular service provided.  42 U.S.C. § 1395ww(d).   If the cost to the hospital of providing a particular service is less than the amount of reimbursement, the hospital, in effect, earns a "profit" from that service.   Conversely, should the actual cost of a service exceed the preestablished rate of reimbursement, the hospital may be said to have incurred a "loss" on that particular service.   According to the hospital's calculations, it would have earned under the budget ordered by the commission an aggregate "profit" of $1,754,000 solely from the care and treatment of medicare patients during the 1984 fiscal year.   The commission's budget, however, provided for a gain of only $99,000 from total operations--the combined gain arising from the care and treatment of both medicare and nonmedicare patients.   Thus, according to the hospital, under the commission's budget, it was forced to incur an operating loss of $1,655,000 from the care and treatment of non-medicare patients, which loss was to be subsidized by its operating gain of $1,754,000 from its "medicare business," resulting in a net operating gain of $99,000.   The hospital claims that the commission's action in this case conflicts with the federal medicare reimbursement system "because the ordered budget deprives the Hospital of the choice to use its Medicare [profits] in the manner which it deems most appropriate."
                

The preeminent purpose of the medicare reimbursement system is to control the cost to the federal government of the medicare program. Prior to October 1, 1983, the federal government reimbursed participating hospitals based on the reasonable costs actually incurred by the hospital in providing health care services to medicare patients. 42 U.S.C. §§ 1395e, 1395f(b), 1395ww(b). Congress recognized that a reimbursement system based on actual costs provided hospitals with little or no incentive to increase efficiency in the provision of medical services. See H.R.Rep. No. 25, 98th Cong., 1st Sess., 132, reprinted in 1983 U.S.Code Cong. & Ad.News 219, 351. The medicare "prospective payment" system, effective October 1, 1983; Pub.L. No. 98-21, § 601 et seq., 97 Stat. 149 (1983); establishes reimbursement rates for medical services regardless of the actual cost to the hospital. 42 U.S.C. § 1395ww(d). As a necessary corollary of the prospective payment system, hospitals are encouraged to

                contain costs associated with the treatment of medicare patients, and thereby to turn a "profit," in a manner of speaking, on medicare operations.   We simply cannot accept, however, the hospital's contention that the purpose of Congress in enacting the prospective medicare reimbursement system was to allow participating hospitals to earn "profits" from their treatment of medicare patients, and then to insulate these "profits" from all state regulation.   This is not a case where Congress has explicitly provided that the recipient of federal funds " 'may' use the monies for 'any' ... purpose."   Lawrence County v. Lead-Deadwood School District, 469 U.S. 256, 105 S.Ct. 695, 699, 83 L.Ed.2d 635 (1985).   Rather, Congress has simply established uniform reimbursement rates for specified medicare services.   The commission's primary purpose and concern is to control the rapidly increasing cost of health care.   We believe that the work of the commission is fully compatible with the intent of Congress to control the cost of the federal medicare program.   We therefore reject the hospital's claim that the commission's September 15, 1983 budget order unconstitutionally conflicts with the federal medicare reimbursement system
                

B

SCOPE OF REVIEW

We next address the hospital's claims of error relating to specific items cut from its proposed budget by the commission in its September 15, 1983 decision. Before turning to those claims, we reiterate for the benefit of all concerned that the scope of our review is extremely limited. Judicial review of the commission's budget decision is governed by the Uniform Administrative Procedure Act. General Statutes § 4-166 et seq. With regard to questions of fact, it is neither the function of the trial court nor of this court "to retry the case or to substitute its judgment for that of the administrative agency." Madow...