Southeast Arizona Medical Center v. Arizona Health Care Cost Containment System Admin.

• Decision Date: 10 September 1996
• Docket Number: No. 1,CA-CV,1
• Citation: 188 Ariz. 276,935 P.2d 854
• Parties: SOUTHEAST ARIZONA MEDICAL CENTER, an Arizona corporation, Plaintiff-Appellant, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, an agency of the State of Arizona, Defendant-Appellee. 95-0445.
• Court: Arizona Court of Appeals

Page 854

935 P.2d 854

188 Ariz. 276

SOUTHEAST ARIZONA MEDICAL CENTER, an Arizona corporation, Plaintiff-Appellant, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, an agency of the State of Arizona, Defendant-Appellee.

No. 1 CA-CV 95-0445.

Court of Appeals of Arizona Division 1, Department C.

Sept. 10, 1996.

Reconsideration Denied Nov. 29, 1996.

Review Denied April 29, 1997.

[188 Ariz. 277] Johnston Maynard Grant and Parker, P.L.C. by Logan T. Johnston, Phoenix, for Defendant-Appellee.

Gammage & Burnham, P.L.C. by Curtis Ullman, Cameron C. Artigue, Richard B. Burnham, Phoenix, for Plaintiff-Appellant.

OPINION

EHRLICH, Judge.

Southeast Arizona Medical Center ("SAMC") appeals from the superior court's grant of partial summary judgment in favor of the Arizona Health Care Cost Containment System ("AHCCCS") Administration ("Administration") on SAMC's claim against the Administration for nonpayment of disproportionate-share payments and the court's dismissal of its negligence claim. For the reasons which follow, we reverse the partial summary judgment and the determination regarding the issue of negligence, and remand this matter for further proceedings.

FACTS AND PROCEDURAL HISTORY

The United States Congress established the Medicaid program in 1965 as an effort to furnish necessary medical services to disadvantaged persons. The State of Arizona participates in the Medicaid program through AHCCCS, the state agency designed to provide health-care services to the state's eligible population. Ariz.Rev.Stat.Ann. ("A.R.S.") § 36-2901 et seq. The AHCCCS program exists as a Medicaid demonstration project authorized by certain waivers from the federal government and monitored by the Health Care Finance Administration of the U.S. Department of Health and Human Services ("HCFA"). 42 U.S.C. § 1315.

In 1987, Congress began to provide disproportionate-share payments to hospitals serving a disproportionate share of low-income patients. Omnibus Budget Reconciliation Act of 1987, P.L. 100-203, sec. 4112, 101 Stat. 1330. By appropriating additional Medicaid funding to make disproportionate-share payments to qualifying hospitals, Congress intended to ameliorate the losses being suffered by hospitals treating an unusually high number of disadvantaged persons. 42 U.S.C. § 1396r-4. In 1991, Arizona began to participate in the disproportionate-share program. Laws 1991, 4th Sp.Sess., Ch. 3, § 1(B) (Dec. 17, 1991) ("Enactment of a disproportionate share program which has received federal approval shall be used as a means for improving reimbursement levels to hospitals."). The legislature assigned to the AHCCCS Administration the task of determining which hospitals qualified as ones entitled to share in the additional funds. A.R.S. § 36-2903.01(R) ("Notwithstanding any law to the contrary, on federal approval the administration may make disproportionate share payments to hospitals beginning October 1, 1991 in accordance with federal law and subject to legislative appropriation."). However, the legislature also made clear that, by participating in the disproportionate-share-payment program, it was not obligating itself to appropriate state money. Laws 1991, 4th Sp.Sess., Ch. 3, § 1(C) ("If at any time federal monies used to make disproportionate share payments are denied or become unavailable for any reason, the state shall not be obligated to make any future appropriations from the state general fund for the purpose of making disproportionate share payments.").

AHCCCS customarily enrolls eligible persons in one of the private health plans or health-care-service organizations with which it contracts to provide care, such as Mercy Care Plan ("MCP") or Arizona Physicians IPA ("APIPA"), the plans involved in this case. The plans are responsible for either supplying the health-care services or for subcontracting with health-care providers such as SAMC to provide the necessary care. A.R.S. § 36-2904. Subcontractors like SAMC remit claims and charges for plan-enrolled AHCCCS members to the plans for payment, not to AHCCCS. Ariz.Admin.Code ("A.A.C.") R9-22-705. The plans then seek payment from AHCCCS. However, the disproportionate-share program, because it provides funds directly to hospitals apart from service payments, operates somewhat differently.

The 1991 law provided that:

Disproportionate share payments made pursuant to this act for fiscal year 1991-1992 shall be computed based on information received by the [Administration] as of November 27, 1991.

1991 Sess.Laws, 4th Sp. Sess., Ch. 3, § 4. The requisite "information" was to be derived from "encounter data," which essentially consists of reports detailing the nature of and charges for health-care services provided to AHCCCS members.

AHCCCS, as the single state agency administering the plan, is charged by the HCFA with collecting encounter data as one of the HCFA's conditions of waiver for Arizona to proceed with its demonstration project. 42 U.S.C. § 1396a(a)(5); 42 C.F.R. §§ 431.107(b), 431.10(e); see 1990 State of Arizona--Arizona Health Care Cost Containment System--Request for Proposal ("Proposal Request ") (Hearing Ex. 17). By federal regulation, the state plan must provide for an agreement between AHCCCS and "each provider or organization furnishing services under the plan in which the provider or organization agrees to: (1) Keep any records necessary to disclose the extent of services the provider furnishes to recipients;...." 42 C.F.R. § 431.107(b). See A.A.C. R9-22-507, R9-22-522.G. Among the purposes of encounter reporting is to gather facts to enable the HCFA and AHCCCS to evaluate the nature of given care, which would include the nature and number of services provided by hospitals for which AHCCCS payment is not sufficient and, thus, disproportionate-share funding is a necessary augmentation.

AHCCCS has significant control over how the encounter data is collected and detailed requirements pertaining to how the data is submitted. Indeed, so exact and numerous are the details that Section I(C)(2)(j)(10) of the Proposal Request specifies that there shall be on the staff of the contractor at least one "encounter processor to ensure the timely and accurate submission of encounter data reports." The providers submit the data to the plans, which, in turn, forward the data to the Administration, whereupon Article IV of the standard contract stipulates that the data "shall be deemed to be owned by AHCCCS." Sanctions may be assessed against any party in the chain for the failure to promptly and correctly transmit the data. In this case, it was not disputed and the Administration found that all of the encounter data submitted by SAMC was given to APIPA and MCP in a timely manner.

Under federal and Arizona law there are four accepted formulas for calculating a hospital's disproportionate-share eligibility and payment but only one of them, the federal "low-income-utilization" calculation, see 42 U.S.C. § 1396r-4(b), is involved here. Under that formula, ¹ a hospital is eligible for a disproportionate-share payment if its "low-income-utilization rate" exceeds 25 percent.

On December 18, 1991, SAMC wrote to the Administration expressing concern that SAMC apparently had not qualified for disproportionate-share payments. The Administration responded that, based on the data which the Administration had received as of November 27, 1991, SAMC was not qualified and, further, that, because the legislative cut-off date had passed, the Administration could not consider any alternative data offered by SAMC. SAMC then initiated a grievance before the Administration, challenging its "refusal to designate the hospital as a disproportionate share hospital."

In its "List of Witnesses and Exhibits" filed prior to the grievance hearing, SAMC gave the following "Summary of Issues":

Grievant asserts that it was entitled to participate in the Medicaid disproportionate share program for fiscal year 4/1/89-3/30/90 based upon its qualification in the low income utilization group. The agency improperly excluded grievant from the list of participating hospitals based upon a mistaken assessment of the Title XIX[ ²] and non-Title XIX revenues paid to the hospital during that fiscal year. In determining the hospital's eligibility, the agency relied upon charge and revenue figures which its representative has acknowledged were patently inaccurate. Based upon accurate figures for the time period in question, grievant was entitled to participate in the disproportionate share program. The agency's failure deprived the hospital of funds to which it was entitled pursuant to both federal and state statutes. The agency acted negligently in failing to recognize the hospital's eligibility for the program and the hospital is entitled to recover based upon the agency's negligence and the entitlement created by state and federal statutes.

Two witnesses were called at the November 10, 1992, hearing. The first to testify was Joan Agostinelli, the health-planning consultant who had designed the disproportionate-share program for AHCCCS. She said that, in early October 1991, she had requested a printout of SAMC's inpatient charges for AHCCCS members. The printout indicated that SAMC had no such charges, a fact Agostinelli knew to be incorrect. She then searched other data bases, including SAMC's Medicaid Cost Reports, to "roughly" determine if SAMC might qualify for a disproportionate-share payment. She concluded, however, that it probably would not qualify. Agostinelli also testified that, prior to the hearing, she requested another report of the SAMC data, this time seeking all data received as of November 27, 1991, the legislative cut-off date. Although this second printout yielded a much higher number of AHCCCS-member charges, the resulting low-income-utilization calculation resulted in a 19.49 percent low-income-utilization rate, more than five percent below the 25 percent qualifying...