In re Consol. Hosp. Surcharge Appeals of Gillette Children's Specialty Healthcare

• Decision Date: 06 July 2015
• Docket Number: No. A14–1462.,A14–1462.
• Citation: 867 N.W.2d 513
• Parties: In the Matter of the Consolidated Hospital Surcharge Appeals of GILLETTE CHILDREN'S SPECIALTY HEALTHCARE, St. Luke's Hospital, North Memorial Health Care, HealthEast Care System, Park Nicollet Health Services, Fairview Health Services, and Children's Hospitals and Clinics of Minnesota.
• Court: Minnesota Court of Appeals

867 N.W.2d 513

In the Matter of the Consolidated Hospital Surcharge Appeals of GILLETTE CHILDREN'S SPECIALTY HEALTHCARE, St. Luke's Hospital, North Memorial Health Care, HealthEast Care System, Park Nicollet Health Services, Fairview Health Services, and Children's Hospitals and Clinics of Minnesota.

No. A14–1462.

Court of Appeals of Minnesota.

July 6, 2015.

Review Granted Sept. 29, 2015.

Salvatore G. Rotella, Jr. (pro hac vice), Reed Smith LLP, Philadelphia, Pennsylvania; and Thomas R. Muck, Samuel D. Orbovich, Sten–Erik Hoidal, Fredrikson & Byron, P.A., Minneapolis, MN, for appellants Gillette Children's Specialty Healthcare, St. Luke's Hospital, North Memorial Health Care, HealthEast Care System, Park Nicollet Health Services, Fairview Health Services, and Children's Hospitals and Clinics of Minnesota.

Lori Swanson, Attorney General, Barry R. Greller, Patricia A. Sonnenberg, Assistant Attorneys General, St. Paul, MN, for respondent Minnesota Department of Human Services.

Considered and decided by PETERSON, Presiding Judge; ROSS, Judge; and JOHNSON, Judge.

OPINION

JOHNSON, Judge.

We are asked to decide whether the State of Minnesota may, without encroaching on federal law, assess and collect a surcharge on the revenues that Minnesota hospitals receive for providing health-care services to persons who are insured by group health-insurance plans that cover employees of the federal government. We conclude that the applicable federal statutes do not preempt the applicable state statute. Therefore, we affirm the decision of the commissioner of human services.

FACTS

In Minnesota, hospitals must pay a 1.56–percent surcharge on “net patient revenues.” Minn.Stat. § 256.9657, subd. 2 (2014). The surcharge is assessed and collected by the Minnesota Department of Human Services (DHS) and deposited into the state general fund. Minn.Stat. § 256.9656 (2014).

The Federal Employees Health Benefits Act (FEHBA) authorizes the federal government to provide health insurance to employees of the federal government. See generally 5 U.S.C. §§ 8901 –14 (2012). The act directs the federal Office of Personnel Management (OPM) to enter into group health-insurance contracts with insurance carriers. 5 U.S.C. § 8902(a). The act includes a provision that preempts certain state laws:

(1) No tax, fee, or other monetary payment may be imposed, directly or indirectly, on a carrier or an underwriting or plan administration subcontractor of an approved health benefits plan by any State, the District of Columbia, or the Commonwealth of Puerto Rico, or by any political subdivision or other governmental authority thereof, with respect to any payment made from the Fund.

(2) Paragraph (1) shall not be construed to exempt any carrier or underwriting or plan administration subcontractor of an approved health benefits plan from the imposition, payment, or collection of a tax, fee, or other monetary payment on the net income or profit accruing to or realized by such carrier or underwriting or plan administration subcontractor from business conducted under this chapter, if that tax, fee, or payment is applicable to a broad range of business activity.

5 U.S.C. § 8909(f).

Similarly, the federal TRICARE program provides health-insurance plans to uniformed service members of the United States armed forces. 10 U.S.C. §§ 1071, 1072(7) (2012). In a manner similar to FEHBA, the statute authorizing the TRICARE program directs the Secretary of Defense to enter into group health-insurance contracts with insurance carriers. See 10 U.S.C. §§ 1071, 1073(a) (2012). The statute authorizing the TRICARE program also preempts certain state laws. 10 U.S.C. § 1103 (2012). The language of the TRICARE preemption provision is different from the language of the FEHBA preemption provision, but a federal regulation promulgated by the Department of Defense states that the scope of the TRICARE preemption provision is the same as that of the FEHBA preemption provision. See 32 C.F.R. § 199.17(a)(7)(iii) (2014) (directing that interpretations of section 1103 “shall be consistent with those applicable to the Federal Employees Health Benefits Program under 5 U.S.C. 8909(f) ”).

In 2012, seven hospitals operating in Minnesota challenged DHS's assessments of the surcharge authorized by section 256.9657, subdivision 2(a), by separately filing administrative appeals. See Minn.Stat. § 256.9657, subd. 6. The sole ground of each administrative appeal was that FEHBA and the statute creating the TRICARE program preempt the state statute that authorizes the surcharge. The commissioner of human services denied the hospitals' administrative appeals in September 2012.

The hospitals requested a consolidated contested-case hearing before the office of administrative hearings, and the commissioner consolidated the hospitals' administrative appeals. See Minn. R. 9510.2040, subp. 3 (2013). In November 2013, the parties filed cross-motions for summary disposition. See Minn. R. 1400.5500(K) (2013). In January 2014, the assigned administrative law judge (ALJ) issued a ten-page order recommending that DHS's motion for summary disposition be granted, that the hospitals' motion for summary disposition be denied, and that the hospitals' administrative appeals be dismissed.

In July 2014, the commissioner's delegatee, the director of the appeals office of the department, issued a seven-page order adopting the ALJ's recommendation. The hospitals appeal to this court by way of a writ of certiorari.

ISSUE

Do the federal statutes authorizing the FEHBA and TRICARE programs preempt Minnesota Statutes section 256.9657, subdivision 2, which authorizes the department of human services to assess and collect a surcharge on revenues received by Minnesota hospitals for health-care services to the extent that revenue is received for services provided to persons covered by the FEHBA and TRICARE programs?

ANALYSIS

The hospitals argue that the commissioner erred by deciding that Minnesota's surcharge on their revenues is not preempted by federal law to the extent that the hospitals receive revenues for services provided to persons covered by the FEHBA and TRICARE programs.

The commissioner's decision arose from a motion for summary disposition. “Summary disposition is the administrative equivalent of summary judgment.” Pietsch v. Board of Chiropractic Exam'rs, 683 N.W.2d 303, 306 (Minn.2004) (citing Minn. R. 1400.5500(K) (2003) ). Accordingly, the commissioner may grant a motion for summary disposition if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. In re Rate Appeal of Benedictine Health Ctr., 728 N.W.2d 497, 500–01 n. 3 (Minn.2007). In reviewing an agency's grant of a motion for summary disposition, “[t]he scope of our review is governed by the Minnesota Administrative Procedures Act, Minn.Stat. § 14.63 –69.” Hy–Vee Food Stores, Inc. v. Minnesota Dep't of Health, 705 N.W.2d 181, 184 (Minn.2005). The Minnesota Administrative Procedures Act provides:

In a judicial review under sections 14.63 to 14.68, the court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the administrative finding, inferences, conclusion, or decisions are:

(a) in violation of constitutional provisions; or

(b) in excess of the statutory authority or jurisdiction of the agency; or

(c) made upon unlawful procedure; or

(d) affected by other error of law; or

(e) unsupported by substantial evidence in view of the entire record as submitted; or

(f) arbitrary or capricious.

Minn.Stat. § 14.69 (2014).

A.

We begin our analysis with the source of the federal preemption doctrine, the Supremacy Clause of the United States Constitution, which provides:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

U.S. Const. art. VI, cl. 2. The preemption of state law may operate impliedly, “through the direct operation of the Supremacy Clause,” either because a federal statute conflicts with a state statute or because “the scope of a [federal] statute indicates that Congress intended federal law to occupy a field exclusively.” Kurns v. Railroad Friction Prods. Corp., ––– U.S. ––––, 132 S.Ct. 1261, 1265–66, ––– L.Ed.2d –––– (2012) (quotations omitted); see also In re Qwest's Wholesale Serv. Quality Standards, 702 N.W.2d 246, 250–51 (Minn.2005). In addition, Congress may enact a statute that expressly preempts certain state laws. Kurns, 132 S.Ct. at 1265. Thus, “Federal law can preempt state law in three ways: through (1) field preemption, (2) express preemption, and (3) conflict preemption (sometimes called ‘implied conflict preemption’).” Housing & Redevelopment Auth. v. Lee, 852 N.W.2d 683, 687 (Minn.2014) (citing Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152–54, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) ); see also Freightliner Corp. v. Myrick, 514 U.S. 280, 287, 115 S.Ct. 1483, 1487, 131 L.Ed.2d 385 (1995) ; In re Estate of Barg, 752 N.W.2d 52, 63–64 (Minn.2008). In this case, the parties agree that the issue presented by the hospitals' appeal is a matter of express preemption. Accordingly, we focus on the doctrine of express preemption, i.e., the power of Congress “to pre-empt state law by so stating in express terms.” Hillsborough Cnty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105 S.Ct. 2371, 2375, 85 L.Ed.2d 714 (1985).

When interpreting the preemption provisions of the FEHBA and TRICARE statutes, we are mindful of the caselaw concerning the interpretation of federal preemption statutes. The United States Supreme Court has stated that “ ‘[t]he purpose of Congress...