Quincy City Hosp. v. Rate Setting Com'n

• Decision Date: 16 January 1990
• Parties: , 28 Soc.Sec.Rep.Ser. 227, Medicare & Medicaid Guide P 38,481 QUINCY CITY HOSPITAL et al. 1 v. RATE SETTING COMMISSION & others 2 (and a consolidated case 3 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 869

548 N.E.2d 869

406 Mass. 431, 28 Soc.Sec.Rep.Ser. 227,

Medicare & Medicaid Guide P 38,481

QUINCY CITY HOSPITAL et al. ¹ v. RATE SETTING COMMISSION & others ²

(and a consolidated case ³).

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Oct. 2, 1989.

Decided Jan. 16, 1990.

Mitchell H. Kaplan for Anna Jaques Hospital & others.

Richard A. Johnston (Peter T. Wechsler with him) for Quincy City Hospital & others.

Douglas H. Wilkins, Asst. Atty. Gen., for defendants.

Richard P. Ward & Robert B. Gordon, for Brockton Hosp., Inc., & others, amici curiae, submitted a brief.

Before LIACOS, C.J., and NOLAN, LYNCH and GREANEY, JJ.

LYNCH, Justice.

The plaintiffs (hospitals) in these two cases challenge the Rate Setting Commission's (commission's) assessment of the Medicaid reimbursement to which they are entitled for fiscal years 1983 through 1985. ⁴ Specifically, they attack the commission's use of a $70 per day rate for one component of the reimbursement formula in the now-superseded State statute, St.1982, c. 372, controlling Medicaid payments in fiscal years 1983 through 1985. The State regulation setting the $70 per day rate was invalidated for 1982 when it was reviewed by this court under the standards of a different Federal Medicaid scheme in place before, and inapplicable to, c. 372's enactment. New England Memorial Hosp. v. Rate Setting Comm'n, 394 Mass. 296, 475 N.E.2d 740 (1985). Because the c. 372 formula incorporated 1982 rates as its starting point, the hospitals assert the commission was obliged to recalculate their Medicaid reimbursement for fiscal years 1983 through 1985 to reflect the much higher "routine care rates" ordered for 1982 by this court. They allege that the Legislature's amendment of c. 372, four months after the New England Memorial Hosp. decision, expressly to require use of the $70 per day figure for 1983 through 1985, was a procedurally defective and unconstitutional attempt to deprive the hospitals of a substantial portion of Medicaid payments due them for those years.

In October, 1985, and April, 1986, the hospitals filed these separate actions for declaratory and injunctive relief under G.L. c. 30A, § 7, and c. 231A in the Supreme Judicial Court for Suffolk County. They seek a declaration that St.1985, c. 200, § 3 (amending G.L. c. 6A, § 68, the codification of St.1982, c. 372) is invalid, and request an order that the "routine care" rate, rather than seventy dollars, be used to compute the relevant portion of their final Medicaid reimbursement rates for 1983 through 1985. The single justice granted joint motions to consolidate, and to reserve and report these cases here, on a stipulation of facts by the parties. Because of the view we take of these cases, we do not construe St.1985, c. 200, § 3, and declare that the hospitals are not entitled to the relief they seek.

A review of the long and complicated history of this Medicaid reimbursement rate controversy is necessary to understand the ultimate conclusion we reach on the hospitals' claims. We draw the following summary from the parties' stipulations and their record appendices, prior court decisions, and legislative history. Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (1983), offers States the option of participating in the cooperative Federal-State program commonly called "Medicaid," aimed at providing, "as far as practicable under the conditions in such State," payment for "necessary medical services" to the poor. 42 U.S.C. § 1396. If a State chooses to participate, it must submit to the Secretary of Health and Human Services (secretary) a "State plan" for medical assistance that comports with Federal statutory and regulatory requirements. Id. See 42 U.S.C. § 1396a(a), and 42 C.F.R. §§ 430, 10-430.16, and 447.252-256 (1988). Before August, 1981, the reimbursement rates in a State plan could not be implemented without the prior approval of the secretary. Since the overhaul of Title XIX's Medicaid provisions by the Omnibus Budget Reconciliation Acts of 1980, Pub.L. No. 96-499, § 902, 94 Stat. 2599, 2613 (1980), and 1981, Pub.L. No. 97-35, § 2173(a)(1), 95 Stat. 357, 808 (1981) (commonly referred to as the Boren Amendment), however, the Federal oversight requirement has been reduced. As a result, a State need only "find and make assurances satisfactory to the secretary" that the plan's rates reasonably reimburse costs of efficiently run providers to allow them to satisfy Federal Medicaid standards of care. 42 U.S.C. § 1396a(a)(13)(A).

Massachusetts participates in the Medicaid program through a two-pronged regulatory apparatus. The commission is responsible for setting the reimbursement rates for Medicaid providers, such as the plaintiff hospitals, under G.L. c. 6A, § 32 (1988 ed.). The Department of Public Welfare (department) is charged with administering the program itself, under G.L. c. 118E, §§ 3, 4, & 6 (1988 ed.), and making sure the Commonwealth continues to comply with the relevant Federal Medicaid rules, as they are routinely revised by Congress and the United States Department of Health and Human Services (HHS).

In February, 1981, the commission put into effect a regulation setting seventy dollars as the daily reimbursement rate for care administered by Commonwealth hospitals to Medicaid patients during "administratively necessary days" (AND). ⁵ The $70 per AND rate represented the mean daily costs to a skilled nursing facility in a hospital, incurred in caring for patients of equivalent needs to those in acute-care hospitals on AND status. A companion regulation permitted hospitals to apply for an administrative adjustment to raise their AND reimbursement rate from seventy dollars to their "routine rate" if they could demonstrate "extreme difficulty" in placing AND patients in nursing homes. ⁶ Prior to the February, 1981, regulation, hospitals were reimbursed for AND at their "routine rate," meaning the average costs of providing all patients the "routine" portion of their hospital care (i.e., bed, board, and nursing services), as determined by the commission. The average "routine rate" among the plaintiff hospitals was $150 per day for fiscal year 1982.

The pre-Boren Amendment Federal statutory requirements for State Medicaid plans in effect at the time required that "inpatient hospital service" rates had to reimburse providers for their "reasonable costs" of rendering such services, according to a methodology that received the approval of the secretary before being implemented. 42 U.S.C. § 1396a(a)(13)(D) (repealed, effective August, 1981). While reserving its right to contest the HHS's position that the department's regulation on AND required prior Federal approval, the department submitted the regulation, as a proposed amendment to the Commonwealth's Medicaid plan, to the HSS's regional Medicaid director. In April, 1981, the Federal official denied approval of the department's $70 per AND rate on the ground that it did not reimburse providers for "reasonable costs" of hospital services. The department went ahead and implemented the $70 per AND rate regulation. In a declaratory judgment action brought by some twenty-five hospitals throughout the Commonwealth, this court decided that the department should have obtained prior Federal approval in order to implement an AND rate change, and thus the department's regulation was invalid for the period February 1, 1981, through August 13, 1981, when the Boren Amendment's major changes to the Federal Medicaid rules took effect. Addison Gilbert Hosp. v. Rate Setting Comm'n, 390 Mass. 17, 453 N.E.2d 424 (1983).

A second declaratory judgment action attacking the department's AND rate resulted in our invalidation of the AND regulation for the remainder of fiscal year 1982 as well. In New England Memorial Hosp. v. Rate Setting Comm'n, 394 Mass. 296, 475 N.E.2d 740 (1985), we declared the regulation invalid from the period after August 13, 1981 (and the effective date of the Boren Amendment), until October 1, 1982, when the Commonwealth's comprehensive new system of hospital Medicaid reimbursements--established by St.1982, c. 372--was to be instituted. That decision was based on the conclusion that, even under the less demanding Federal oversight rules of the Boren Amendment, the Commonwealth had failed to meet the applicable procedural requirement, since it had not filed "assurances" with the secretary that the $70 per AND rate, with opportunity for administrative adjustment, reasonably reimbursed the costs of "efficiently and economically operated facilities." 42 U.S.C. § 1396a(a)(13)(A). We then declared that for fiscal year 1982 the hospitals were entitled to AND reimbursement at the "routine rate" that predated the defective $70 per AND regulation.

In 1982, before this court decided either Addison Gilbert or New England Memorial Hosp., St.1982, c. 372, was enacted. This statute, "the culmination of a long and difficult negotiation process between the State Administration and the hospital industry, the medical profession, Blue Cross, the private insurance industry, and the business community," revamped the entire hospital reimbursement system in the Commonwealth, and represented "a mutual concern about the unacceptably high level of hospital costs in Massachusetts," in the words of the department, a characterization echoed by the hospitals. ⁷ With these words, the department opened its August, 1982, application to the secretary seeking approval of the new Massachusetts Medicaid reimbursement plan as an experimental project to enhance "incentives for economy while maintaining or improving quality in provision of health services." 42 U.S.C. § 1395b-1 (1983). Such experimental reimbursement projects could be granted a waiver from meeting Title XIX requirements "relat[ing] to reimbursement on the basis of reasonable cost." Id. at § 1395b-1(b). In September, 1982, the St.1982, c. 372, reimbursement scheme received both...