Massachusetts General Hospital v. Rate Setting Commission

• Decision Date: 02 April 1971
• Citation: 269 N.E.2d 78,359 Mass. 157
• Parties: MASSACHUSETTS GENERAL HOSPITAL v. RATE SETTING COMMISSION et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 78

269 N.E.2d 78

359 Mass. 157

MASSACHUSETTS GENERAL HOSPITAL v. RATE SETTING COMMISSION et al. ¹

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Feb. 5, 1971.

Decided April 2, 1971.

Albert G. Tierney, Jr., Daniel I. Cronin, Jr., Boston, for plaintiff.

Harry P. Haveles, Sp. Asst. Atty. Gen., for defendants.

Before TAURO, C.J., and SPALDING, CUTTER and BRAUCHER, JJ.

CUTTER, Justice.

The plaintiff (M.G.H.) seeks declaratory relief (see G.L. c. 30A, § 7, and c. 231A) concerning certain regulations of the Rate Setting Commission (the commission) established under G.L. c. 7, §§ 30K--30P (as appearing in St.1968, c. 492, § 3). The defendants filed a demurrer, which was sustained on two grounds, viz. (no. 3) that M.G.H. cannot maintain a bill for declaratory relief under c. 30A, § 7, and c. 231A, because its 'exclusive remedy is under' G.L. c. 7, § 30O; and (no. 4) that M.G.H. has not exhausted its 'administrative remedies under' § 30O. M.G.H. appealed from the interlocutory decree sustaining the demurrer, and from a final decree dismissing its bill.

Attached to (and referred to in) the bill are the exhibits listed in the margin. ² The pertinent allegations of the diffuse bill are summarized below.

(1) M.G.H. is a nonprofit hospital, which brings the bill, for itself and others similarly situated, against the commission and the commissioner. The State Department of Public Welfare (the State department) is the State 'agency responsible for the administration of the State (p)lan for * * * Medicaid.' By St.1969, c. 800, § 1, a new chapter, G.L. c. 118E, was enacted, establishing 'in conformity with * * * Title XIX of the Social Security Act * * * a program of medical care and assistance for' residents of Massachusetts.

(2) M.G.H. is a 'provider' under G.L. c. 118E and c. 7, § 30K, and furnishes inpatient hospital care. Among 'the persons receiving hospital care are those who * * * have rights under * * * c. 118E,' and 42 U.S.C. (1964, Supp. V, 1970) §§ 1396--1396g (Title XIX), to have part or all of their hospital care paid for as benefits 'according to a program popularly known as Medicaid.' M.G.H. 'expects payment for hospital care from all of its in-patients, whether from the patient individually or * * * under Medicaid' where payment is made on behalf of the patient direct to M.G.H. M.G.H.'s published charges for its services 'are established by * * * (the trustees of M.G.H.) annually and from time to time, as necessary, as a result of a detailed and comprehensive budget * * * based upon past operating experience, data, and statistics, as well as the projected operating expenses and income in the oncoming fiscal year. * * * (The) budget is designed to produce charges to be used in * * * (that) fiscal year which will be equal to * * * operating expense.'

(3) On February 18, 1970, the commission 'without regard to any (r)egulations of * * * (H.E.W.) or the law, made regulations for the determination of rates of payment to * * * (M.G.H.) and all other hospital institutions for Medicaid * * * in-patient care under' G.L. c. 7, § 30L. These regulations are set forth in Exhibit C (fn. 2) attached to the bill. They 'provide for the determination of a per diem rate of money payment which bears no relationship to the charges for the services furnished a patient (or) the costs of the hospital, and provides for no final settlement for underpayment or overpayment or any of the methods, standards, or procedures which are used and currently employed by * * * (M.G.H.) and * * * (H.E.W.) for the care of Medicare patients.'

(4) The State department pays the rates thus established by the commission's regulations (Ex. C.) to M.G.H. and other hospitals for the care of persons entitled to Medicaid.

(5) The bill then proceeds to allege or assert various legal principles in somewhat confused fashion, as follows:

(a) The rights and duties of (i) persons entitled to Medicaid, (ii) the State department, (iii) the commission, and (iv) M.G.H. and all other 'provider' hospitals are governed by 42 U.S.C. (1964, Supp. V, 1970) §§ 1396--1396g (Title XIX), the approved State plan (Ex. B, fn. 2), and the H.E.W. regulations (Ex. D, fn. 2). ³ See 45 C.F.R. § 250.30 and 20 C.F.R. §§ 405.401 to 405.454.

(b) General Laws c. 7, § 30L (as appearing in St.1968, c. 492, § 3; see later amendment by St.1970, c. 714), requires the commission to establish 'fair and reasonable rates of payment to be used by governmental units,' which (at least with respect to 'the rates to be paid by each governmental unit to providers of health services') are required to 'be consistent where applicable with the principles of reimbursement for provider costs in effect from time to time under Title XVIII and Title XIX * * * of the Social Security Act governing reimbursements or grants available to the commonwealth, its departments * * * or political subdivisions for general health supplies, care, services and accommodations.' The 'principles of reimbursement for provider costs' are found in 20 C.F.R. §§ 405.401 to 405.454 (which over at least twenty-two to twenty-three closely printed pages).

(c) H.E.W. regulations for Medicaid (Title XIX) are then referred to (somewhat inaccurately) as requiring the Commonwealth to apply (under Title XIX) to 'each hospital (also) participating in the Health Insurance for the Aged program under title XVIII of the Social Security Act * * * the same standards, cost reporting period, cost reimbursement principles, and method of cost apportionment currently used in computing reimbursement to such hospital under title XVIII.' Reference is made to 45 C.F.R. § 250.30(b).

(6) M.G.H. has an agreement with H.E.W. to provide hospital care to Title XVIII (Medicare) patients and has done so since July 1, 1966. Under this agreement, M.G.H. is paid for care according to H.E.W. regulations describing the principles of reimbursement for provider costs, mentioned above. See 20 C.F.R. §§ 405.401 to 405.454. These principles 'provide for a method of payment, cost report forms, cost report periods, and an interim payment consisting of a certain percentage of the charges for the services furnished an individual patient at the time the services are furnished in a current year, a final audit after the close of a current fiscal year, and then a final settlement between * * * (H.E.W.) and the hospital to adjust for underpayment or overpayment based upon the actual cost data of the hospital.'

(7) The State plan, pubmitted by the Commonwealth to H.E.W. and approved by the latter's Secretary in 1966, provides that the Commonwealth will abide by H.E.W.'s regulations. Because of action by the commission, see next par. (8), and the State department, it is alleged that the State plan (and the regulations under it) now are in violation of H.E.W. regulations.

(8) M.G.H.'s principal complaint is that the commission has made regulations (Ex. C, fn. 2) 'for the determination of rates of money payment to * * * (M.G.H.) for the care of Medicaid * * * (i.e. G.L. c. 118E and Title XIX) patients' entirely contrary to the requirements of (a) G.L. c. 7, § 30L, (b) H.E.W. regulations, and (c) 42 U.S.C. §§ 1396--1396g, 'all of which require, in addition to fair and reasonable rates, that * * * rates must be derived, computed and paid on the same basis as (that on which) the * * * (M.G.H.) is paid and reimbursed under' Medicare (Title XVIII) and the pertinent H.E.W. regulations. See 20 C.F.R. §§ 405.401 to 405.454.

(9) M.G.H. alleges the existence of a controversy between it, on the one hand, and the State Department, on the other hand.

It may be that, because of the complexity of the applicable State and Federal statutes and regulations, M.G.H. could not have made allegations of fact, sufficient to be good against demurrer, without a very complete statement of the substance of the statutes and regulations. The statement, unfortunately, is diffuse and somewhat disorderly. Nevertheless, we think the following principal allegations have been set out adequately:

(1) M.G.H. is a 'provider' of hospital care under Medicare (Title XVIII) and Medicaid (Title XIX,--and also G.L. c. 118E).

(2) The applicable Federal statutes and regulations and also G.L. c. 7, § 30L, require that M.G.H. as a 'provider' be reimbursed by the State department for the care of Medicaid (Title XIX) patients on the same basis as that on which it is entitled to be reimbursed for the care of Medicare (Title XVIII) patients.

(3) The Federal regulations under Title XVIII provide in great detail principles of reimbursement for provider costs (20 C.F.R. §§ 405.401 to 405.454) on a basis which will give M.G.H. fair reimbursement.

(4) The commission has now prescribed by its Emergency Regulation No. 70--2 (Ex. C--February 18, 1970) a method of reimbursement of M.G.H. and other 'provider' hospitals for the Medicaid care of 'publicly-aided' patients (Title XIX) which is seriously inconsistent with the applicable Federal regulations under Title XVIII (Medicare).

(5) These regulations, if applied in computing reimbursement rates for M.G.H. and other 'provider' hospitals, will operate greatly to their detriment.

1. The trial judge sustained the demurrer on the grounds (a) that M.G.H. was barred from bringing a bill for declaratory relief (G.L. c. 231A) with respect to M.G.H.'s rights under the commissioner's regulations (Ex. C) because G.L. c. 78 30O, provided the exclusive remedy for testing the regulations, and (b) M.G.H. had not exhausted its administrative remedy under § 30O. This necessitates analysis of G.L. c. 7, §§ 30L and 30O, and of the commission's emergency regulations (Ex. C).

General Laws c. 7, § 30L (as appearing in St.1968, c. 492, § 3; see later amendment by St.1970, c. 714), provides that the commission shall 'determine * * * the rates to be paid by each governmental unit to providers of health services' and that each such unit 'shall pay to a provider of health...