Phoenix Children's Hosp. v. AHCCCS
| Decision Date | 18 March 1999 |
| Docket Number | No. 1 CA-CV 98-0117.,1 CA-CV 98-0117. |
| Citation | 987 P.2d 763,195 Ariz. 277 |
| Parties | PHOENIX CHILDREN'S HOSPITAL, an Arizona corporation; Samaritan Health System, an Arizona corporation; Carondelet Health Services, Inc., an Arizona corporation, d/b/a Carondelet St. Joseph's Hospital and Carondelet St. Mary's Hospital; Chandler Regional Hospital, an Arizona corporation; Mesa General Hospital, an Arizona corporation; Flagstaff Medical Center, an Arizona corporation; Mesa General Hospital Medical Center, Inc., an Arizona corporation; Phoenix Baptist Hospital, an Arizona corporation; Scottsdale Memorial Hospital, an Arizona corporation; Mercy Healthcare Arizona, an Arizona corporation, d/b/a St. Joseph's Hospital and Medical Center; Tucson Medical Center, an Arizona corporation; University Medical Center Corporation, an Arizona corporation, Yuma Regional Medical Center, an Arizona corporation; and Galen of Arizona, Inc., an Arizona corporation, d/b/a Columbia Medical Center Phoenix, Plaintiffs-Appellants, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, an agency of the State of Arizona; John Kelly, M.D., in his official capacity as Director, Defendants-Appellees. |
| Court | Arizona Court of Appeals |
Gammage & Burnham, P.L.C. by Richard B. Burnham, Cameron C. Artigue, Phoenix, Attorneys for Appellants.
Johnston & Dodd, P.L.C. by Logan T. Johnston, Catherine M. Dodd, Anne C. Longo, Phoenix, Attorney for Appellees.
¶ 1 Plaintiffs appeal the trial court's determination that they may not file a declaratory judgment action pursuant to Arizona Revised Statutes Annotated ("A.R.S.") section 41-1034 (1992) to challenge an agency policy that they claim should have been promulgated as a rule pursuant to the Administrative Procedure Act1 ("APA"). Plaintiffs also appeal the trial court's dismissal of their remaining claims for failure to exhaust their administrative remedies. We agree with the trial court and therefore affirm the judgment.
¶ 2 Plaintiffs are Arizona hospitals and medical centers that treat indigent newborn patients in need of neonatal intensive care and seek reimbursement from the Arizona Health Care Cost Containment System ("AHCCCS"). Pursuant to its implementing statutes, A.R.S. sections 36-2901 et seq., AHCCCS adopted a "per diem" methodology for reimbursing hospitals for treating AHCCCS patients. On May 22, 1996, the AHCCCS Administration issued "clinical criteria" to aid in determining appropriate reimbursement for patients treated in neonatal intensive care units. The clinical criteria took effect on July 30, 1996.
¶ 3 Plaintiffs sued the AHCCCS Administration, seeking a declaration that (1) the clinical criteria are "rules" 2 and thus are invalid because they were not promulgated pursuant to the APA, and (2) the clinical criteria are invalid because they are arbitrary and capricious and exceed AHCCCS's statutory authority. AHCCCS moved to dismiss, claiming that Plaintiffs could not seek a declaratory ruling pursuant to section 41-1034 because section 41-1033 (Supp.1995) (amended 1998) provided the exclusive avenue for challenging agency practices alleged to be rules. AHCCCS also asserted that Plaintiffs needed to exhaust their administrative remedies under AHCCCS's grievance procedures before they could challenge the reimbursement methodology in superior court.
¶ 4 The trial court dismissed Plaintiffs' claim that the clinical criteria constituted "rules," holding that Plaintiffs could not seek such a ruling under section 41-1034. The court stayed action on the remaining claims pending the supreme court's ruling in R.L. Augustine Construction Company v. Peoria Unified School District, 188 Ariz. 368, 936 P.2d 554 (1997). After the supreme court issued its ruling in Augustine, AHCCCS renewed its motion to dismiss. The trial court rescinded its initial minute entry and entered a new order dismissing Plaintiffs' complaint, reaffirming that Plaintiffs needed to proceed under section 41-1033 rather than section 41-1034, and finding that Plaintiffs needed to exhaust their administrative remedies under AHCCCS's grievance and appeal process before seeking judicial review on the legality of the reimbursement methodology.
¶ 5 Plaintiffs appealed. We have jurisdiction pursuant to A.R.S. section 12-2101(B) (1994).
¶ 6 We first address Plaintiffs' claim that the clinical criteria are "rules" as defined in section 41-1001(18) and are therefore not valid because they were not promulgated pursuant to the APA. Arizona law is clear that "[a] rule is invalid unless adopted and approved in substantial compliance with ... [the relevant sections of the APA]." A.R.S.§ 41-1030 (Supp.1996) (amended 1998). One aggrieved by a rule may challenge its validity by "obtain[ing] a judicial declaration of the validity of the rule by filing an action for declaratory relief in the superior court in Maricopa county...." A.R.S. § 41-1034.
¶ 7 AHCCCS maintains that the clinical criteria are not rules, but rather are agency policies that need not be promulgated through the formal rulemaking process to be valid. It further contends that, if Plaintiffs want the clinical criteria to be formally promulgated as rules pursuant to the APA's rulemaking process, their exclusive recourse is to petition the agency pursuant to section 41-1033. We agree.
¶ 8 Plaintiffs base their claim that they may seek a declaratory ruling on the validity of the clinical criteria on this court's decision in Southwest Ambulance, Inc. v. Arizona Dep't of Health Servs., 183 Ariz. 258, 902 P.2d 1362 (App.1995). In Southwest Ambulance, the Department of Health Services issued ambulance rate schedules, which, like the clinical criteria at issue in this case, were not formally promulgated as rules in accordance with the APA. See id. at 260-61, 902 P.2d at 1364-65. The ambulance company challenged the failure to promulgate the schedules as rules by filing a declaratory judgment action, and we affirmed that such an action was the proper vehicle for challenging the Department's actions:
The Department argues that Southwest... was not challenging a "rule" which had already been adopted. Southwest, the Department says, was complaining that it was subject to a schedule that should have been a rule. We hold that the schedules issued by the Department should have been adopted as rules and whether they were or not, Southwest was forced to operate in conformity with them. It was aggrieved in just the manner contemplated by A.R.S. section [ ] 41-1034....
Id. at 263, 902 P.2d at 1367. Thus, following Southwest Ambulance, a party who thought an agency practice or policy was properly the subject of a "rule" could seek a declaratory ruling pursuant to section 41-1034 that the agency must follow the APA rulemaking process. See id.
¶ 9 Following the court's decision in Southwest Ambulance, however, the legislature amended section 41-1033 to specifically allow agency review of practices that are alleged to fall within the APA definition of "rule":
A.R.S. § 41-1033 (emphasis added). In setting forth the appropriate forum in which to challenge a rule, practice, or policy, the amended statute distinguishes between "rules" and practices or substantive policy statements that persons allege should be rules. Rules may still be challenged under section 1034, as before, but practices or policies that an aggrieved party argues should be promulgated as rules but have not been must now be challenged before the agency, pursuant to section 1033.
¶ 10 We disagree with Plaintiffs that the amendment to section 41-1033 simply allows Plaintiffs a choice of forum in which to challenge an agency practice. We must read sections 41-1033 and 41-1034 to give effect to both. For "[w]hen the Legislature adds a new statute to an existing statutory scheme, and the later statute does not expressly repeal the former statute, then the former and the new statutes should be construed so as to give effect to each, if possible." Alexander v. Fund Manager, 166 Ariz. 589, 593, 804 P.2d 122, 126 (App.1990). The statutes before us neither conflict nor overlap. Each means exactly what it says, and each can be given effect.
¶ 11 Under the APA, a "rule" is "an agency statement of general applicability that implements, interprets or prescribes law or policy, or describes the procedure or practice requirements of an agency." A.R.S. § 41-1001(18). Thus, the superior court's jurisdiction under section 41-1034 to determine the validity of a "rule" requires an affirmative resolution of a critical threshold question: whether the challenged practice or policy is a "rule" as defined by section 41-1001(18). This determination should not be difficult. If an agency propounds a proposed rule through the applicable notice, comment, certification, and publication requirements of the APA, it has promulgated a rule. Section 41-1034 by its terms allows declaratory judgment actions to challenge "rules." With the 1995 amendments to section 41-1033, the legislature made clear that whether an agency practice or policy meets the definition of "rule" under section 41-1001(18) is not for the superior court to determine under section 41-1034.
¶ 12 Plaintiffs argue that interpreting section 41-1034 to exclude from the definition of a "rule" an agency policy...
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