Massachusetts General Hospital v. Weiner

• Decision Date: 25 January 1978
• Docket Number: No. 77-1191,77-1191
• Citation: 569 F.2d 1156
• Parties: MASSACHUSETTS GENERAL HOSPITAL, Plaintiff, Appellant, v. Stephen M. WEINER et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1156

569 F.2d 1156

MASSACHUSETTS GENERAL HOSPITAL, Plaintiff, Appellant, v. Stephen M. WEINER et al., Defendants, Appellees.

No. 77-1191.

United States Court of Appeals, First Circuit.

Jan. 25, 1978.

H. Scott Haskell, Boston, Mass., with whom Albert G. Tierney, Jr., and Tierney, St. Onge & Manoil, Boston, Mass., were on brief, for plaintiff, appellant.

S. Stephen Rosenfeld, Asst. Atty. Gen., Boston, Mass., with whom Francis X. Bellotti, Atty. Gen., Boston, Mass., was on brief, for Stephen M. Weiner, et al., defendants, appellees.

William A. Brown, Asst. U. S. Atty., Chief, Civ. Div., Boston, Mass., with whom Edward F. Harrington, U. S. Atty., and Nancy S. Nemon, Deputy Regional Atty., Dept. of Health, Education and Welfare, Boston, Mass., were on brief, for Joseph A. Califano, Jr.

Before: COFFIN, Chief Judge, CAMPBELL, Circuit Judge, CRARY, District Judge. ^*

CRARY, District Judge.

This appeal is from an order of the District Court granting the appellees' motion for summary judgment in an action filed by the Massachusetts General Hospital (MGH) in July, 1975, seeking declaratory and injunctive relief from Medicaid rate regulations promulgated by the Massachusetts Rate Setting Commission (the Commission) and approved by the Secretary of Health, Education and Welfare (the Secretary), pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396a(a)(13)(D).

At issue is (1) whether a plan of prospective reimbursement ("the Plan") for paying the cost of inpatient hospital services provided to Massachusetts Medicaid patients, developed by the State of Massachusetts and approved by the Secretary, meets the "reasonable cost" requirement of 42 U.S.C. § 1396a(a) (13)(D), and implementing Federal regulation at 45 C.F.R. 250.30, (2) whether the prospective reimbursement plan conforms to various procedural requirements of the State law of Massachusetts, and (3) whether the prospective reimbursement plan protects the appellant's constitutional rights under Article I, Section 10, Clause 1, of the United States Constitution, and its rights of equal protection and due process of law under the 14th Amendment to the Constitution.

Appellant and State appellees filed cross motions for summary judgment and, on February 4, 1977, the District Court, in a well-reasoned order, granted the State appellees' motion on the grounds there was no genuine issue of material fact and all issues of law were decided in favor of the State defendants, appellees herein.

The prospective rate system proposed by Massachusetts and approved by the Secretary, and subsequently included in its Title XIX State Plan, provides for all inpatient hospital care for Medicaid patients to be reimbursed by an all-inclusive per diem payment. State regulations 74-1, 74-26 and 14 C.H.S.R. 3, set forth the formula by which rates of reimbursement for hospitals participating in the Medicaid program were to be calculated. Under this formula the Medicaid rate, which was prospective in nature for a hospital, was established by dividing its base year ¹ costs for all inpatients by its allowed number of the base year inpatient days. An inflation factor, compounded over two years, is added to arrive at the hospital's Medicaid rate. The State Plan was approved by the Secretary, through his designee, the Regional Commissioner of the Social and Rehabilitation Service, on December 11, 1973.

The current rate set for the MGH at the time of the appeal was $265.95 per day for each Medicaid inpatient.

The reimbursement formulas for fiscal years ending September 30, 1974, 1975 and 1976, were the same in all respects pertinent to this case. They create a system of prospective rate making designed to reimburse each hospital on the basis of "reasonable costs" incurred in treating Medicaid inpatients and to encourage efficiency and economy.

It is appellant's position that the State formula does not provide that a hospital will be reimbursed its actual costs, which, it asserts, is required by Federal statute, ² and that the Commission violated State laws ³ by setting rates for the appellant in specific amounts under a prospective rate system without affording it prior opportunity to be heard.

The Medicaid services rendered in medical facilities must be medically necessary and consistent with professionally recognized standards of care. 42 U.S.C. § 1320c-4(a)(1).

In order for the State to participate in Medicaid under the program authorized, Title XIX of the Social Security Act, 42 U.S.C. 1396, et seq., and 45 C.F.R. 250.30a, it must submit a plan to the Secretary of Health, Education and Welfare, detailing how it will fulfill the Federal conditions set forth in the Act and regulations thereunder. If the Secretary determines the conditions are met, he approves the plan, which he did in the case at bench. When implementing Section 232 of P.L. 92-603, the Secretary removed from 45 C.F.R. 250.30 the reference to the Secretary's approval being "on a demonstration or experimental basis."

When the Medicaid Act was enacted in 1965, the Secretary, and, in turn, the Courts, interpreted the Act to require the states to reimburse the hospital in the same manner as the allowable cost method was developed under the Medicare Act, to wit, the "costs actually incurred" by the hospital provider.

Section 1396a(a)(13)(D) of Title 42 U.S.C., ⁴ as amended in 1972 by Sections 221 and 232 of Public Law 92-603, provides that state plans for reimbursement for Medicaid patients must provide for "reasonable costs" for such services, provided that such plans do not produce reimbursement in excess of that which would result in the application of Title XVIII (Medicare) standards and principles of cost reimbursement.

The implementing Federal regulation, 45 C.F.R. 250.30(a), adopted in August, 1974, makes it clear that states, in their plans for reasonable costs, may adopt Title XVIII (Medicare) standards and principles, or alternative reimbursement plans that meet the criteria set out in the regulations which concern cost reporting. However, after December 31, 1973, payments to hospitals for Medicaid inpatient services shall be based on the lesser of the reasonable cost of services or the customary charges to the general public or, when applicable, in accordance with Title XVIII regulations. 45 C.F.R. 250.30(a)(2)(i)-(iii).

Appellants' principal objection to the State Plan is that it is based initially on the average cost per day of all inpatients in a given hospital rather than on the average daily cost of Medicaid inpatients per day, and that this method deprives appellant of its "reasonable costs" since it experienced substantially higher average daily costs for Medicaid inpatients than for non-Medicaid inpatients. It was agreed that there were other hospitals in the State whose costs for Medicaid inpatients averaged substantially less under the Plan than for non-Medicaid inpatients.

As observed by the district court, the legal issue is not whether the complex Plan is perfect, but whether under the Federal system of reimbursement, which has among its objectives the valid goal of providing incentives for efficiency and economy, the Plan can be said to provide for "payment of the reasonable cost of inpatient hospital services." The answer lies not in an assessment of policy, for that is the function of the state and Federal agencies, but in an analysis of the record presented to these agencies in light of the statutory and constitutional requirements. We conclude, as did the district court, that neither the language of the statute and regulations nor the evidence presented below supports appellant's contention in this case.

The hospital contends that Congress intended "reasonable costs" of inpatient hospital services under Medicaid to mean full payment of the actual cost thereof. If Congress had intended "reasonable costs" to be synonymous with "actual costs", however, there would have been no reason for the amendments as promulgated by Public Law 92-603, 42 U.S.C. § 1396a(a)(13)(D), to provide for the "reasonable cost" program.

That the strict construction of the language is warranted can be readily concluded by reference to decisions interpreting the previous regulation. In Catholic Medical Center of Brooklyn and Queens, Inc. v. Rockefeller, 305 F.Supp. 1256 (E.D.N.Y.1969) and Connecticut State Department of Public Welfare v. Department of Health, Education and Welfare, 448 F.2d 209 (2d Cir. 1971), the Federal courts involved turned aside the states' attempts to adopt a Medicaid reimbursement system different from Medicare. In reaching their decisions the courts there relied on the HEW's regulations requiring actual cost reimbursement and the arguments of HEW opposing the positions of the states. However, HEW has since changed its regulations to permit what was then prohibited. 45 C.F.R. 250.30(a) and (b). In the case at bench HEW is aligned with Massachusetts, having approved its plan. The Court in Massachusetts General Hospital v. Sargent, 397 F.Supp. 1056 (D.Mass.1975), relied on the New York and Connecticut cases, supra, stating as to the effect of the regulations cited:

"The Secretary's regulations have the force of federal law upon the States. King v. Smith, 392 U.S. 309, 317, 88 S.Ct. 2128, 20 L.Ed.2d 1118."

Id. at 1061.

The Supreme Court, in Mourning v. Family Publications Service, Inc., 411 U.S. 356, 371-73, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973), comments, with respect to a regulation of the Federal Reserve Board, on the question of whether a measure chosen by an agency is reasonably related to its objectives, observing:

"That some other remedial provision might be preferable is irrelevant. We have consistently held that where reasonable minds may differ as to which of several remedial measures should be chosen, courts should defer to the informed experience and judgment of the agency to whom Congress delegated appropriate authority." Id. at 371-72, 93 S.Ct. at 1662.

...