Multicare Medical Center v. State, Dept. of Social and Health Services
| Decision Date | 26 April 1990 |
| Docket Number | No. 56223-7,S,No. 2,2,56223-7 |
| Parties | MULTICARE MEDICAL CENTER, a Washington nonprofit corporation; Stevens Memorial Hospital, Public Hospital Districtnohomish County; Lakewood General Hospital, a Washington nonprofit corporation; Good Samaritan Hospital, a Washington nonprofit corporation; Yakima Valley Memorial Hospital Association, a Washington nonprofit corporation; Kadlec Medical Center, a Washington nonprofit corporation; on behalf of themselves and all other hospitals and health care facilities similarly situated, Respondents, v. STATE of Washington, DEPARTMENT OF SOCIAL AND HEALTH SERVICES, and A.N. Shinpoch, Secretary of the Department of Social and Health Services, Petitioners. |
| Court | Washington Supreme Court |
Kenneth O. Eikenberry, Atty. Gen., Patricia K. Nightingale, Asst., Olympia, for petitioners.
Bennett & Bigelow, David A. Bennett, Sanford E. Pitler, Seattle, for respondents.
The present case tests the legality of the Department of Social and Health Services' (DSHS) variable ratable reductions to MI-GAU reimbursement payments to participating hospitals. The trial court invalidated the program and held that DSHS was not purchasing MI-GAU hospital care as authorized by RCW 74.09.120. We reverse.
DSHS is an administrative agency of the State of Washington charged with the administration of two state-funded medical care services programs: 1 the medical care services program, General Assistance Unemployable (GAU), and the limited casualty program, Medically Indigent (MI). GAU is governed by RCW 74.09.035. Under the GAU program medical care services may be provided to recipients of general assistance in accordance with medical eligibility requirements established by DSHS. GAU provides assistance to unemployable persons not eligible for, or not receiving, federal aid or assistance. WAC 388-80-005(31). MI is governed by RCW 74.09.700. A person who has an acute and emergent medical condition and meets the financial eligibility requirements set forth in WAC 388-100 may be eligible for the MI program. The statutes governing both the GAU program and the MI program expressly mandate that such services are to be provided "[t]o the extent of available funds". RCW 74.09.035(1) and RCW 74.09.700(1).
In the present case, the six plaintiff hospitals 2 (Hospitals) have provided both MI and GAU inpatient hospital care. The dispute concerns reductions in the reimbursement payments by DSHS for that inpatient care.
RCW 74.09.120 is the general authority for DSHS to purchase certain health care and for hospitals to receive payment for their services. The statute provides, in relevant part, that DSHS
shall purchase hospital care by contract or by all inclusive day rate, or at a reasonable cost based on a ratio of charges to cost.
RCW 74.09.120.
In the present case, DSHS contends that it purchased MI-GAU inpatient hospital care pursuant to a series of unilateral contracts, the terms of which are set forth in a document entitled "Core Provider Agreement" (Agreement). 3 According to DSHS, the Agreement is a standard contract required by WAC 388-87-007 which, together with provider participation in the program, constitutes the agreement between DSHS and the hospital. DSHS began using the Agreement in September 1981, pursuant to WAC 388-87-007, effective September 1980. 4
The Agreement provides that and "[a] provider shall bill usual and customary charges or according to instructions issued" by DSHS. The Agreement does not specify the reimbursement rates which are to be paid to the hospitals for the MI-GAU care. Rather, applicable payment levels for hospitals are established by DSHS pursuant to regulation. WAC 388-87-070.
From 1981, when DSHS first began using the Agreement, until July 1, 1982, DSHS paid for hospital inpatient care for both MI-GAU and Title XIX patients in an identical manner by determining reimbursable costs according to Medicare cost reimbursement methods pursuant to WAC 388-87-070.
Between July 1, 1982 and February 15, 1983, pursuant to WAC 388-87-070(2) then in effect, DSHS paid hospitals for care provided to MI-GAU patients and Title XIX patients in an identical manner, paying the hospitals' operating expenses for those patients as approved by the Washington State Hospital Commission (Hospital Commission). This method paid the hospitals' charges for the particular patient multiplied by the ratio of Hospital Commission-approved operating expenses to Hospital Commission-approved total rate setting revenue. This ratio is known as the "OE/TRSR" ratio.
Between February 15, 1983 and June 30, 1983, DSHS did not pay hospitals in an identical manner for MI-GAU and Title XIX care. In response to a financial shortfall, DSHS implemented the first variable ratable reduction on MI-GAU payments. 5 Although DSHS made no reductions in Title XIX payments during this period, DSHS reduced OE/TRSR-based MI-GAU payments by an amount which varied from 4.4 percent to 20.1 percent depending upon the particular hospital's percentage of revenue from full charge paying patients. 6
DSHS's goal in establishing the variable ratable reduction was to require those hospitals best able to absorb losses to do so whenever DSHS concluded that it was without adequate funds. Accordingly, the variable ratable reduction formula adopted in 1983 grouped hospitals according to their base of full charge paying patients. The hospitals with the smallest base of full-charge paying patients had their MI-GAU reimbursement payments reduced by a smaller percentage of their total rate-setting revenue than the other hospitals.
Between July 1, 1983 and March 31, 1984, DSHS paid for MI-GAU care at the same rate as Title XIX care. No variable ratable reduction was imposed; rather, DSHS paid a hospital's full OE/TRSR ratio.
Between April 1, 1984 and April 30, 1985, DSHS did not pay hospitals in an identical manner for MI-GAU and Title XIX care. Although DSHS made no reductions in Title XIX payments to hospitals, DSHS reduced MI-GAU payments by a variable ratable reduction varying from 2.7 percent to 22.9 percent depending upon the particular hospital's percentage of revenue from full charge paying patients. 7
On January 1, 1985, DSHS altered the reimbursement method for most Title XIX and MI-GAU care from the OE/TRSR method to a Diagnosis Related Group (DRG) payment method. Under the DRG method, a hospital receives a fixed fee, the amount of which depends in part upon a patient's diagnosis and the hospital's historic average cost per discharge.
Between May 1, 1985 and June 30, 1985, DSHS increased the variable ratable reductions. 8 Accordingly, DSHS reduced reimbursement payments for MI-GAU care by a variable ratable reduction varying from 40 percent to 60 percent depending upon the hospital's revenue from full charge paying patients. No reductions, however, were made for Title XIX payments.
Beginning July 1, 1985, DSHS based the variable ratable reductions on the amount of revenue a hospital received from MMBC. Between July 1, 1985 and September 30, 1985, although DSHS made no reductions in Title XIX payments, DSHS reduced DRG-based payments for MI-GAU patients by a variable ratable reduction of between 2.7 percent and 23.4 percent depending upon the particular hospital's percentage of MMBC revenue. 9
In sum, under the 1983 regulation, there was a 5-tiered variable with an overall average 18.7 percent reduction and the hospitals were classified according to their percentage of fullcharge paying patients. In 1985, the regulation was modified to create a 3-tiered variable with an overall average 38 percent reduction with hospitals classified according to their percentage of non-full-charge paying patients (the converse of the 1983 regulation).
For admissions between October 1, 1985 and the date of trial, DSHS made no reductions in Title XIX payments. However, DSHS applied a variable ratable reduction in each hospital's payment for MI-GAU care. Under WAC 388-87-070(6), a hospital's payment is reduced by 20 percent, 40 percent, or 60 percent depending upon the particular hospital's percentage of total rate-setting revenue. 10 DSHS stated that the ratable reduction is necessary to maintain DSHS's medical assistance expenditures within the level of appropriated funds.
On November 5, 1985, DSHS held a public hearing which addressed the adoption of the amendments to WAC 388-87-070(6). Representatives of the Hospitals attended and submitted written materials and oral testimony in opposition to the proposed ratable reductions. On November 15, 1985, the amendment was permanently adopted. 11
In October 1985, when WAC 388-87-070(6) was adopted as an emergency measure, the most complete data for all hospitals was the Hospital Commission 1983 year-end conformance (YEC) data which showed each hospital's percentage of MMBC revenue. In administering WAC 388-87-070(6), which implemented the variable ratable reductions, DSHS used the 1983 YEC data from October 1985 until the date of trial. Although new data became available annually, and the Hospitals requested DSHS to use the new MMBC data in administering the variable ratable reductions, DSHS did not adjust the hospital's ratable percentages in accordance therewith. Had DSHS used the new data, some of the Hospitals would have received an increase in MI-GAU reimbursement payments.
In March 1986, the Hospitals sued DSHS seeking declaratory and injunctive relief. The Hospitals challenged the legality of the variable ratable reductions. In addition, the Hospitals alleged that Medicare revenue should not be included in the ratable computation and that DSHS used outdated data in...
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