Salem Hosp. v. Rate Setting Com'n

• Decision Date: 22 August 1988
• Docket Number: No. 87-928,87-928
• Citation: Salem Hosp. v. Rate Setting Com'n, 526 N.E.2d 1326, 26 Mass.App.Ct. 323 (Mass. App. 1988)
• Parties: , Medicare & Medicaid Guide P 37,934 SALEM HOSPITAL v. RATE SETTING COMMISSION et al. 1
• Court: Appeals Court of Massachusetts

Page 1326

526 N.E.2d 1326

26 Mass.App.Ct. 323, Medicare & Medicaid Guide P 37,934

SALEM HOSPITAL v.RATE SETTING COMMISSION et al.¹

No. 87-928.

Appeals Court of Massachusetts Suffolk.

Argued May 10, 1988.

Decided Aug. 22, 1988.

Suzanne E. Durrell, Asst. Atty. Gen., for the Rate Setting Commission & another.

Edward H. Seksay, Boston, for plaintiff.

Before GRANT, CUTTER and KASS, JJ.

KASS, Justice.

Aggrieved by the final Medicaid ² reimbursement rates set for it by the Rate Setting Commission, ³ Salem Hospital appealed ⁴ under G.L. c. 6A, § 36, to the Division of Administrative Law Appeals(DALA).An administrative magistrate, after hearing, concluded that the appeal to DALA did not lie because the hospital had failed first to ask the commission for administrative adjustments.In so deciding, the magistrate relied heavily upon Woodland Estates, Inc. v. Rate Setting Commn., 15 Mass.App.Ct. 297, 445 N.E.2d 181(1983), and this appeal requires us to explore the boundaries of that opinion.More particularly, we must consider whether, under the regulatory scheme applicable in this case, the hospital had a right under G.L. c. 6A, § 36, to appeal directly to DALA without a further round before the commission.

Having decided that the points being pressed in the hospital's appeals were not properly before her, the administrative magistrate ordered that the rates established by the commission be affirmed.Thereupon the hospital took the next step of lodging an appeal in the Superior Court under the State Administrative Procedure Act(G.L. c. 30A, § 14).A judge of the Superior Court, assisted by a recommendation from a special master, ⁵ concluded that further recourse to the commission was not a prerequisite to the hospital's appealing to DALA under § 36.Accordingly, the judge set the DALA decision aside and remanded the case to DALA for further consideration by DALA as to the adequacy, fairness, and reasonableness of the rates set by the Rate Setting Commission.The government has appealed from that judgment.⁶

Any party aggrieved by an interim or final rate established by the commission "shall, within thirty days after said rate is filed with the state secretary ... file an appeal with [DALA]...."G.L. c. 6A, § 36, as inserted by St. 1973, c. 1229, § 2(emphasis supplied).To the extent that the first step in understanding a statute is to read its plain words (Blue Cross of Mass., Inc. v. Commissioner of Ins., 397 Mass. 674, 678, 493 N.E.2d 481[1986] ), it is at least significant that § 36 speaks in mandatory terms and does not qualify with alternatives or conditions the obligation of the aggrieved person to record dissatisfaction by means of an appeal.Within the third and fourth paragraphs of § 36 the word "may" is used in connection with review of other aspects of the rate setting process.The distinction in statutes between "shall," a word of command, and "may," a word of permission, is not one which courts pass over lightly unless context or other provisions require it.City Bank & Trust Co. v. Board of Bank Incorporation, 346 Mass. 29, 31, 190 N.E.2d 107(1963).All but the most intrepid health care provider, confronted with the text of § 36, would conclude that the filing of an appeal to DALA within thirty days was an essential step in preserving the right to contest a rate established by the commission.

At this juncture it is appropriate to analyze the nature of Salem Hospital's grievance with the rates established for it.In general terms it is, as § 36 requires, that the rates were not "adequate, fair and reasonable."A persistent complaint was that the commission erred in analyzing per bed costs on the basis of the hospital's capacity, rather than the actual or budgeted volume of patient days.Administratively necessary days were said to be miscalculated.In projecting future costs, the hospital contends, the commission had failed to adjust for abnormalities in base years.The commission, so it was alleged, had also neglected to factor in costs attendant on new capital equipment and services for which the hospital had received a determination of need.The allowed outpatient rate did not take into account costs and charges for outpatient services which the commission had reviewed and allowed.What these grievances have in common is that they assert that the commission misapprehended or misapplied economic data which the hospital had furnished.

By contrast, in Woodland Estates, Inc. v. Rate Setting Commn., 15 Mass.App.Ct. at 298, 445 N.E.2d 181, the health care provider (a nursing home) sought to introduce into the rate base the cost of additional nursing coverage for which the provider was obliged to obtain prior approval under then applicable regulations.Without prior approval, the provider could not claim the excess cost from the Rate Setting Commission and could not, by appeal, charge the commission with failing to take that excess cost into account in establishing a rate for the provider.Id. at 298-301, 445 N.E.2d 181.This was not a matter of barren insistence on procedural regularity.There is a practical difference between asking for allowance of an excess cost in advance, when there may be a wide range of options, policies and compromises available, and justifying it after the fact, when the choices are to approve or disapprove.Cf.Stadium Manor, Inc. v. Division of Admn. Law Appeals, 23 Mass.App.Ct. 958, 960-961, 503 N.E.2d 43(1987).

As for the items here in controversy, some, under the then applicable regulations ⁷ could, indeed, have been the subject of an application for administrative adjustment, e.g., errors in calculation, inability to use a significant portion of licensed beds, and a substantial new program.The regulatory text provided that "[a] hospital may make application for discretionary administrative adjustment ..."(emphasis supplied).114.1 Code Mass.Regs. § 3.14(1)(1978) and see note 7 of this opinion.The operative word--may--is a word of permission, not command.In that respect the governing regulation here is unlike that which pertained in Woodland, which provided, "Application for recognition of the cost for such required additional nursing care coverage shall be made in accordance with paragraph 8 of these regulations"(emphasis supplied).Regulationno. 72-1(5)(c)(1972).The signal difference between the Woodland case and this case is that here the rawmaterial for future (as opposed to retrospective) rate determination had already been run by the commission in the proper time sequence.

Nothing in our reading of the applicable regulatory scheme requires that a hospital which, as here, is making a multifaceted attack on rates set by the commission must march up the hill again to the very commission before whom it has appeared and from whose determination it is appealing.The circularity and wastefulness of such a procedure appears to have been recognized by the bureau of hospitals and clinics in the more current regulatory scheme adverted to in note 7.Certainly, such a...