Perkins School For Blind v. Rate Setting Commission

• Decision Date: 30 October 1980
• Citation: 10 Mass.App.Ct. 656,411 N.E.2d 1317
• Parties: PERKINS SCHOOL FOR the BLIND v. RATE SETTING COMMISSION et al.
• Court: Appeals Court of Massachusetts

Page 1317

411 N.E.2d 1317

10 Mass.App.Ct. 656

PERKINS SCHOOL FOR the BLIND v. RATE SETTING COMMISSION et al.

Appeals Court of Massachusetts, Suffolk.

Argued Feb. 12, 1979.

Decided Oct. 30, 1980.

Ansel B. Chaplin, Boston (Gary L. Hoff, Boston, with him), for plaintiff.

Margot Botsford, Asst. Atty. Gen., for the Rate Setting Commission and others.

Before ARMSTRONG, BROWN and KASS, JJ.

ARMSTRONG, Justice.

These cases, which come to us by report of a judge of the Superior Court, present the single question whether the Commonwealth is liable to the Perkins School for interest on the difference between the amounts the Commonwealth originally paid the school for the education and care of special needs students and the higher amounts which were later determined to have been payable for those services under the statutory standard of "adequate, fair and reasonable" compensation. G.L. c. 6A § 36, as inserted by St. 1973, c. 1229, § 2. The Division of Hearings Officers and the Rate Setting Commission had refused the school's demands that their decisions make provision for the payment of such interest, and the school filed complaints seeking judicial review of those decisions under the provisions of G.L. c. 30A, § 14, as amended through St. 1976, c. 411, §§ 1 and 2. Named as defendants were the Department of Education, which, by agreement with the Perkins School, pays the charges for certain students under State programs; the Rate Setting Commission, which, by law, establishes the rates at which various agencies of the Commonwealth pay medical or educational providers for services to state-assisted recipients; ¹ and the Division of Hearings Officers, established by G.L. c. 7, § 4H, and which, under G.L. c. 6A, § 36, hears appeals by providers aggrieved by rates fixed by the commission.

The controversy began in 1971, when the Perkins School announced increases in charges for the 1971-1972 school year. As was customary, the charges were not set high enough to pay the entire cost of education at Perkins School, because the school anticipated income from endowments and gifts which it would apply to operating costs so as to make up the deficiency in revenue from charges. The Rate Setting Commission at that time based its rates on the lower of charges or allowable costs, ² and consequently, in a usual year, the commission would have adopted the schedule of charges announced by the school as the rates payable by the Department of Education for State-assisted students. But that year the President of the United States, acting under the authority of the Economic Stabilization Act of 1970, announced a wage-price freeze, ³ and the Department of Education and the Rate Setting Commission took the position that any increase in Perkins School charges would be in violation of the President's executive order and ensuing regulations. The upshot was that during the school years 1971-1972 and 1972-1973 the rates set by the commission and paid by the department were lower than the rates charged by the Perkins School. The school billed the department, as required in order for the school to receive any payment at all, at the rates established by the commission; but the school expressly reserved its claim that it was entitled to receive payment at the higher rates it charged other students.

A second, independent controversy arose in 1974, which apparently had its origin in institutional or bureaucratic inflexibility in adjusting the commission's policy of establishing rates on a calendar-year basis with the school's policy of establishing charges on a school-year basis. The result was that various increases adopted by the school to take effect September 1, 1974, were adopted by the commission effective January 1, 1975, and the school appealed to the Division of Hearings Officers for higher rates for the period September through December, 1974.

In 1976, the Division of Hearings Officers, after hearing, ruled in favor of the Perkins School with respect to each of the periods in question and ordered the establishment of new rates for each period identical to the schedules of charges which had been fixed by the school. For the school year 1971-1972 the new rates translated into a deficiency of $108,675; for 1972-1973, $1,000; and for September-December, 1974, $28,425. All those figures were agreed to by the parties; but, after the hearing officer's decision was announced, the school raised, by way of a motion for reconsideration, the question of its entitlement to interest on those amounts. The division reconsidered but declined to amend its decision; the commission in adopting the rates required by the hearing officer's decision (see CLIFF HOUSE NURSING HOME, INC. V. RATE SETTING COMMN., --- MASS. ---, 390 N.E.2D 723 (1979)^A), similarly rejected a claim by the school for interest.

The defendants take the position that any claim for interest was waived by the school's failure to press it in the first instance before the Division of Hearings Officers. We have concluded that the claim for interest was not waived, although for a reason not discussed by the parties.

The statutes mentioned in note 1, supra, particularly G.L. c. 6A, §§ 32 and 36, define the function of the Rate Setting Commission and of the Division of Hearings Officers on appeal from a commission determination; their function is to establish rates at which providers will be compensated for services (or, occasionally, goods, such as prescription drugs or other health care supplies) to State-assisted recipients. We find nothing in the statutory scheme which can be construed to vest in those agencies authority to adjudicate the amounts owed by the Commonwealth for services rendered by particular providers subject to State reimbursement, or, in effect, authority to process contract claims against the Commonwealth. The rates fixed by the commission constitute, of course, the basis for computing the amounts payable by the Commonwealth for such services; and where such rates have not previously been fixed, a contract claim for payment will be stayed until that administrative function has been performed. See Massachusetts Gen. Hosp. v. Cambridge, 347 Mass. at 523-524, 198 N.E.2d 889. A rate is merely a price; and the function of establishing the rate is analytically distinct from the function of determining the amount owed for services computed at that rate, a function which takes into account such factors as the volume of services rendered, compliance with contract terms in the rendering of those services, and any other claims for breach of the contractual relationship. The first function is delegated to administrative agencies, subject to judicial review; the latter, under our statutes and cases, is a function of the courts. By this division of authority it was the province of the Rate Setting Commission and the Division of Hearings Officers to fix, in accordance with the statutory standard, the rate which was to be the basis of payment to the Perkins School for students chargeable to the Department of Education, regardless of the number of students who might fall into that category. It was not the function of the commission or the hearing officer to determine whether the Commonwealth was obliged to compensate the school in interest for delays in the payment of amounts due the school for services rendered, and any determination of that question by those agencies would not have been binding on the Commonwealth. It follows that the school did not waive its claim for interest by any failure to press the matter before the division or the commission. It also follows that the decisions of the agencies were not in error by reason of the fact that they made no provision for the payment of interest on overdue amounts. No other claim of error is made; thus, to the extent that the present proceeding is regarded simply as a complaint under G.L. c. 30A, § 14, for judicial review of the agency decisions, the disposition must be that the agency decisions be affirmed.

It is obvious, however, that the sole reason for filing the complaint was to obtain an adjudication of the school's entitlement to interest. No objection has been raised by the Attorney General to resolving that issue in the present proceeding, and the issue has been fully argued on the merits. There is a technical problem, in that the claim for interest is, according to our view as indicated above, a contract claim against the Commonwealth. It is well settled that the Commonwealth is an indispensable party to such a claim. Assessors of Edgartown v. Commissioner of Rev., --- Mass. ---, --- - ---, ^b 400 N.E.2d 1262 (1980). Mitchell v. Metropolitan Dist. Commn., 4 Mass.App. 484, 488-489, 351 N.E.2d 536 (1976). The Commonwealth has not been joined as a party defendant. Nevertheless, the Attorney General, who would have represented the Commonwealth, appeared for each of the three named defendants and presented to the court in their behalf the same contentions, presumably, which he would have made on behalf of the Commonwealth in resisting the school's claim for interest. It is inconceivable, in these circumstances, that the Commonwealth has been prejudiced by not being made a party defendant from the outset, and, due to the running of limitations periods, the school will be severely prejudiced if the case should be dismissed for want of an indispensable party. It is an appropriate case, therefore, for the allowance of a motion to amend the complaint by joining the Commonwealth as a party defendant and by stating a claim for the recovery of interest under the provisions of G.L. c. 258, § 12, as appearing in St. 1979, c. 1, § 1. It is safe to assume that a motion for such an amendment will be made unless the substantive question of the school's entitlement to interest should be resolved adversely to it; and, as that question has been fully briefed and argued, putting off its resolution until the amendment has been made would...