Massachusetts Nurses Ass'n v. Dukakis

• Citation: 570 F. Supp. 628
• Decision Date: 09 September 1983
• Docket Number: Civ. A. No. 83-386-G.
• Parties: MASSACHUSETTS NURSES ASSOCIATION, Plaintiff, v. Michael S. DUKAKIS et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

570 F. Supp. 628

MASSACHUSETTS NURSES ASSOCIATION, Plaintiff, v. Michael S. DUKAKIS et al., Defendants.

Civ. A. No. 83-386-G.

United States District Court, D. Massachusetts.

September 9, 1983.

Alan J. McDonald, McDonald & Noonan, Boston, Mass., for plaintiff.

William Pardee, Asst. Atty. Gen., Boston, Mass., for defendants.

MEMORANDUM AND ORDER OF DISMISSAL

GARRITY, District Judge.

The plaintiff, the Massachusetts Nurses Association (hereinafter the "MNA"), is a professional organization incorporated under Massachusetts law for the purpose of advancing the profession of registered nursing. The MNA filed this complaint February 14, 1983, naming Governor Michael S. Dukakis and three Commissioners of the Massachusetts Rate Setting Commission as defendants, and seeking declaratory and injunctive relief. The complaint seeks a declaration that Massachusetts General Laws Chapter 6A, Sections 31 et seq., which establish a prospective reimbursement system for Massachusetts hospital costs, is preempted by the Labor Management Relations Act pursuant to the supremacy clause of Article VI of the United States Constitution. The plaintiff contends that the prospective reimbursement system established by the Massachusetts law substantially interferes with the Labor Management Relations Act and is therefore preempted. The plaintiff seeks preliminary and permanent injunctive relief against application and enforcement of the Massachusetts statute.

The defendants' motions to dismiss are presently before the court. The motions were filed March 8, 1983, the court received memoranda of law from the parties, and the court heard oral argument on June 2, 1983.

Legislative Background

The statute at issue is Massachusetts' new hospital payment law, which became effective October 1, 1982. The MNA contends that the statute gives the Massachusetts Hospital Association and its member hospitals a distinct and significant advantage over the MNA in collective bargaining and therefore the law interferes with the operation of the Labor Management Relations Act. The MNA contends that the Massachusetts Hospital Association ("MHA") had an integral role in the drafting and lobbying for passage of the law, and the law has interfered with collective bargaining between registered nurses and hospitals throughout the Commonwealth of Massachusetts by causing prolonged negotiations and decreased levels of pay increases for nurses.

The statute is the latest in a series of statutes which have increased the role of the state in regulating hospital costs and charges. The state regulatory scheme has been developing since 1965. In that year, the United States Congress created the Medicare and Medicaid programs (Titles XVIII and XIX of the Social Security Act, now found at 42 U.S.C. §§ 1395-1395xx and 42 U.S.C. §§ 1396-1396p, respectively) in an effort to expand the availability of health care benefits nationwide. Under these programs, hospitals and other providers of health care services were reimbursed for their costs of providing health care to the millions of patients who qualified for Medicare or Medicaid. As originally formulated, these programs virtually guaranteed that all costs incurred by providers would be reimbursed, thus encouraging hospitals and other providers of health care services to participate in the programs. Medicare and Medicaid proved to be very successful in increasing the availability of health care services in this country. However, along with the increased government-financed demand and increased availability of health care came increased costs. See C. Schramm, A State-Based Approach to Hospital-Cost Containment, 18 Harv.J. on Legis. 603, 604 & 604 n. 3 (1981) and articles cited therein. The Medicare and Medicaid programs required the reimbursement on the basis of the hospitals' "reasonable costs" to hospitals which provided inpatient services. Originally, when these programs were first implemented, "reasonable costs" and actual costs were not significantly different. There were administrative mechanisms for preventing overcharges, but under Medicare virtually all hospital costs which fell into specified categories were reimbursed. When the Medicaid Act was enacted, Pub.L. No. 89-97, §§ 1901-1905, 79 Stat. 343 (1965), the Secretary of HEW and the courts interpreted the Act to require the states, which are primarily responsible for administering Medicaid, to reimburse hospitals in a manner similar to the allowable cost method under the Medicare Act, i.e., reimbursement for the costs actually incurred by the hospitals. See Massachusetts General Hospital v. Weiner, 1 Cir. 1978, 569 F.2d 1156, 1158; Massachusetts General Hospital v. Sargent, D.Mass.1975, 397 F.Supp. 1056, 1062 & 1062 n. 5; Catholic Medical Center of Brooklyn and Queens, Inc. v. Rockefeller, E.D.N.Y.1969, 305 F.Supp. 1256; Connecticut State Department of Public Welfare v. Department of Health, Education and Welfare, 2 Cir.1971, 448 F.2d 209. The existence of these programs provided significant incentives for hospital expansions and other increases in hospital costs which were then passed through to taxpayers through Medicare and Medicaid reimbursement. As hospital costs rose rapidly, public pressure was put on Congress and the Department of Health, Education and Welfare to limit Medicaid expenditures and the Secretary changed his position in 1971. See 45 C.F.R. § 250.30. In 1972, Congress amended the Medicaid statute to allow states to deviate from the reasonable cost approach employed under Medicare. In order for a state to participate in Medicaid, it must submit a plan to the Secretary of HEW (now Health and Human Services) which details how the state will fulfill the requirements of the Medicaid statute. See 42 U.S.C. § 1396 et seq. The 1972 statutory amendments provide that states can submit reimbursement plans which do not use the same "costs actually incurred" approach that is employed in the Medicare program. Alternative plans must be designed to encourage efficiency and economy, must provide for payment of the reasonable cost for such services, and must not produce reimbursement which exceeds that which would result if the Medicare "costs actually incurred" approach were employed. See 42 U.S.C. §§ 1395b-1 and 1396a et seq. The motivation behind the Amendments' encouragement of experimental departures from reimbursement along a "costs actually accrued" approach was a growing national concern about the rate at which hospital costs were rising. See, e.g., Note, Hospital Cost Control: Single-Edged Initiatives for a Two-Sided Problem, 15 Harv.J. on Legis. 603, 604 (1978) ("hospital expenditures rose from $3.7 billion in 1950 to $55.4 billion in 1976, and if left unchecked, they are expected to surpass $100 billion by 1982.")

Massachusetts submitted a plan for prospective reimbursement of Medicaid and it was approved by the Secretary of HEW in 1973. The plan was implemented in 1974. See Massachusetts Hospital Assoc. v. Harris, D.Mass.1980, 500 F.Supp. 1270, 1274-1275; Massachusetts General Hospital v. Weiner, supra at 1158-1159. Since that time, Massachusetts' Medicaid reimbursement scheme has been much different than the federal Medicare reimbursement scheme, but all changes have been approved by the Secretary of HEW or the Secretary of the successor Health and Human Services ("HHS").

Since 1974, the Massachusetts plans have always involved, at least to some extent, prospective reimbursement. Prospective reimbursement had been considered explicitly by the Congress during the hearings which predated the 1972 legislation which allowed and encouraged experimentation by the states:

The House Ways and Means Committee believes that payment determined on a prospective basis offers the promise of encouraging institutional policy makers and managers, through positive financial incentives, as well as the risk of possible loss inherent in that method, to plan, innovate, and generally to manage effectively in order to achieve greater financial reward for the provider as well as a lower total cost to the program involved.... Theoretically, this approach to reimbursement introduces incentives not present under the existing reimbursement method which, since it tends to pay whatever the costs turn out to be, provides no incentives for efficiency.

H.R.Rep. No. 92-231, 92d Cong., 1st Sess. 80 (1971), quoted in S.M. Weiner, "Reasonable Cost" Reimbursement for Inpatient Hospital Services Under Medicare and Medicaid: The Emergence of Public Control, 3 Am. J.L. & Med. 1, 30-31 (1977). Massachusetts General Hospital ("MGH") challenged the Massachusetts plan, contending that it was not consistent with the Medicaid statutory scheme. See Massachusetts General Hospital v. Weiner, supra. See also Affiliated Hospitals Center Inc. v. Rate Setting Commission, 1979, 7 Mass.App.Ct. 563, 572-577, 389 N.E.2d 744. The basis of the challenge was the hospital's contention that Massachusetts' plan reimbursed the hospital prospectively and operated on the erroneous assumption that the hospital's average daily costs for providing health care to a Medicaid patient would be the same as the average daily costs for non-Medicaid patients. This assumption led the Massachusetts Rate Setting Commission to set a reimbursement rate for hospital treatment of Medicaid inpatients on the basis of the average cost per day of treating all the patients in the hospital. MGH contended that this plan failed to reimburse the hospital for its "reasonable costs" under the Medicaid program. The Court of Appeals rejected the hospital's challenge, noting that the Secretary of HEW had approved the plan, the plan was formulated with the "valid goal of providing incentives for efficiency and economy," and the plan did not have to be perfect to be lawful so long as it was consistent with the requirements of the federal statutory scheme. Id. at 1158, 1159. The prospective reimbursement scheme was upheld against all...