Md HMO's v. Cost Review

• Decision Date: 03 December 1999
• Docket Number: No. 17,17
• Parties: MARYLAND ASSOCIATION OF HEALTH MAINTENANCE ORGANIZATIONS, et al. v. HEALTH SERVICES COST REVIEW COMMISSION, et al.
• Court: Maryland Court of Appeals

741 A.2d 483

356 Md. 581

MARYLAND ASSOCIATION OF HEALTH MAINTENANCE ORGANIZATIONS, et al. v. HEALTH SERVICES COST REVIEW COMMISSION, et al.

No. 17, Sept. Term, 1998.

Court of Appeals of Maryland.

December 3, 1999.

David M. Funk (Bryan D. Bolton, Steven Jared Troy, Funk & Bolton, P.A., on brief), Baltimore, for appellants.

Maureen M. Dove, Asst. Atty. General (J. Joseph Curran, Jr., Atty. Gen.; Steven M. Sullivan, Margaret Ann Nolan, Stanley Lustman, Leslie Schulman, Asst. Attys. Gen., all on the brief), Baltimore, for appellee.

James A. Dunbar (Benjamin R. Civiletti, Peter P. Parvis, Venable, Baetjer and Howard, LLP; Jerome G. Geraghty, David L. Jacobson, Blades & Rosenfeld, P.A., all on brief), Baltimore, for appellee.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW¹, RAKER, WILNER and CATHELL, JJ ELDRIDGE, Judge.

The issues in this case involve the statutory authority of the Maryland Health Services Cost Review Commission. The plaintiffs-appellants, who are the Maryland Association of Health Maintenance Organizations and Deron Johnson, a member of a Health Maintenance Organization (HMO), claim that the Commission has exceeded its statutory authority in two ways: (1) by implementing the Inflation Adjustment System (IAS), and (2) by allowing excess revenue to be used toward community service programs. They also contend that the Commission violated Maryland's Administrative Procedure Act (APA) by not following APA rulemaking procedures when the IAS was implemented. The Commission argues that the plaintiffs-appellants have no standing to raise these issues.

I.

The General Assembly established the Health Services Cost Review Commission in 1971. See Ch. 627 of the Acts of 1971, presently codified as Maryland Code (1982, 1996 Repl.Vol., 1999 Supp.), §§ 19-201 through 19-227 of the Health-General Article.² The Commission has "jurisdiction over the costs and rates of hospitals, health care institutions and related institutions located in Maryland." Blue Cross v. Franklin Sq. Hosp., 277 Md. 93, 95, 352 A.2d 798, 800 (1976) (Franklin Square I). In § 19-212(5), the Commission is given the three-fold duty of assuring each purchaser of health care facility services that

"(i) The total costs of all hospital services offered by or through a facility are reasonable;

(ii) The aggregate rates of the facility are related reasonably to the aggregate costs of the facility; and

(iii) Rates are set equitably among all purchasers of services without undue discrimination."

In order to carry out this duty, the Commission is authorized to "review and approve or disapprove the reasonableness of any rate that a facility sets or requests." § 19-219(b)(1). Beginning in 1974, the Commission commenced setting hospital rates. A regulated hospital is prohibited from charging any rate not approved by the Commission. § 19-219(b)(2).

The record in this case reflects an historical account of the Commission's setting of rates. The Commission at first conducted "full rate reviews" with respect to every hospital and related institution within its jurisdiction. Under a full rate review, the Commission split the hospitals into groups based on whether they were urban or rural and then computed the actual cost per unit of service departmentby-department, including "all overhead, routine, ancillary, and outpatient areas." See also COMAR 10.37.01.

The Commission learned, however, that completing the full rate review process for the more than 50 hospitals within its jurisdiction was burdensome. The Commission sought a new methodology that was more efficient, less administratively burdensome, and less expensive. The solution was the IAS, the purpose of which was two-fold: first, to adjust rates in a more administratively practical manner so as to reflect changes that had occurred in the hospitals since their initial full rate reviews, and second, to provide incentives for the hospitals to perform more efficiently. After the IAS was implemented, hospital rates went from 25% above the national average in 1976 to 11% below the national average in 1992. While the differential has lessened in the years since 1992, the Commission has acted accordingly, appointing the Targets Task Force in 1995 to recalibrate the system. The Task Force, which was comprised of representatives of insurers, HMO's, hospitals, business, and labor, recommended several changes to the ratesetting system, including the addition of the System Correction Factor (SCF) to the IAS.³ The SCF is a formula used to create a factor which is added to the IAS in order to reduce rates otherwise created under the IAS. The SCF was first applied in 1997; however, from 1992 until the implementation of the SCF, hospital rates in Maryland never exceeded 3% below the national average.

Despite the implementation of the SCF, the plaintiffs Deron Johnson and the Association argue that the use of the IAS, as a ratesetting methodology, is improper. They contend that use of the IAS exceeds the Commission's statutory authority because it is based upon "system-wide inflation factors" rather than "hospital-specific" data. (Plaintiffs' reply brief at 3).

Deron Johnson and the Association filed in the Circuit Court for Baltimore City a six-count complaint seeking a declaratory judgment, a preliminary injunction, a permanent injunction, and the issuance of a writ of mandamus. Counts 1, 3, and 4 of the complaint are at issue before this Court. Those counts alleged that the Commission had violated its statutory authority by implementing the IAS, that the Commission violated the statute by allowing excess revenue to be used toward community service programs, and that the Commission violated Maryland's APA by failing to follow APA rulemaking procedures when the IAS was first implemented.⁴

When the complaint was filed, the only named defendant was the Commission. Shortly thereafter, the Maryland Hospital Association and the Maryland Hospital Coalition were permitted to intervene as defendants. The defendants filed a motion to dismiss, arguing that the plaintiffs lacked standing and that some of the issues were not ripe for decision. The plaintiffs filed a motion for summary judgment as to counts 1, 3, and 4, and the Commission filed a cross-motion for summary judgment on the same counts.

Following a hearing on the motions, the circuit court dismissed counts 2, 5, and 6 on the ground that the issues were not ripe for decision, and granted summary judgment in favor of the defendants on counts 1, 3, and 4. The plaintiffs appealed to the Court of Special Appeals, challenging the grant of summary judgment on counts 1, 3, and 4. Prior to oral argument in the Court of Special Appeals, this Court issued a writ of certiorari. Maryland Assoc. of HMO's v. Health Services Costs, 349 Md. 105, 707 A.2d 90 (1998).

II.

Preliminarily, the Commission argues in this Court that neither Deron Johnson nor the Association had standing in the circuit court to raise the issues encompassed by counts 1, 3, and 4 of the complaint. The Commission asserts that Johnson has not and will not be affected differently from the general public by the Commission's action. See Medical Waste v. Maryland Waste, 327 Md. 596, 611 n. 9, 612 A.2d 241, 248-249 n. 9 (1992)

(in order to have standing to challenge a government agency's action, ordinarily the challenger's "`interest therein must be such that he is personally and specifically affected in a way different from that suffered by the public generally,'" quoting Bryniarski v. Montgomery Co., 247 Md. 137, 144, 230 A.2d 289, 294 (1967)). See also Sugarloaf v. Dep't of Environment, 344 Md. 271, 288, 686 A.2d 605, 614 (1996), and cases there cited. The Commission contends that the Association lacks standing because it has no interest of its own, separate and distinct from that of its members. See Medical Waste v. Maryland Waste, supra, 327 Md. at 612-613, 612 A.2d at 249 ("Under Maryland common law principles, for an organization to have standing to bring a judicial action, it must ordinarily have [an] `... interest of its own—separate and distinct from that of its individual members,'" quoting Citizens Planning and Housing Ass'n v. County Executive, 273 Md. 333, 345, 329 A.2d 681, 687-688 (1974)).

Section 19-227(c) of the Health-General Article of the Code, entitled "standing," provides, inter alia, that "[a]ny person ... that contracts with or pays a facility for health care services has standing to participate in Commission hearings and shall be allowed" to seek judicial review of the Commission's final decisions. In Franklin Square I, 277 Md. at 105-106, 352 A.2d at 806, we took the position that one who pays hospital insurance premiums, with the insurer then paying the hospital, is also a "purchaser" of hospital health care services within the meaning of the statute. Deron Johnson is a member of an HMO. As such, he pre-purchases hospital services, if needed, by paying a monthly premium to his HMO. This premium is based, in part, upon rates set by the Commission. In addition, Johnson is a member of the Commission's Task Force which studies and makes recommendations to the Commission with regard to its ratesetting system. Although the present case is not a judicial review action under § 19-227(c) of the statute, nevertheless the General Assembly contemplated that persons in Johnson's position would have standing to challenge the Commission's actions. Moreover, in our view, Johnson is affected by the Commission's action in a different way than a member of the general public. Consequently, Johnson has standing to maintain this action.

In light of our holding that Johnson has standing, it is unnecessary for us to determine whether the Association also has standing. "Where there exists a party having standing to bring an action or take an appeal, we shall not ordinarily inquire as to whether another party on the same side also has standing." Board v. Haberlin, 320 Md. 399, 404, ...