ST. JOHN MED. CENTER v. STATE EX REL. DSHS

• Decision Date: 18 January 2002
• Docket Number: No. 26390-4-II.,26390-4-II.
• Citation: 38 P.3d 383
• Parties: ST. JOHN MEDICAL CENTER, a division of Peacehealth, a Washington nonprofit corporation, Respondent, v. STATE of Washington, acting through its DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Appellant.
• Court: Washington Court of Appeals

38 P.3d 383

ST. JOHN MEDICAL CENTER, a division of Peacehealth, a Washington nonprofit corporation, Respondent, v. STATE of Washington, acting through its DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Appellant.

No. 26390-4-II.

Court of Appeals of Washington, Division 2.

January 18, 2002.

Kara Anne Larsen, Assistant Atty. Gen./ DSHS, Olympia, for Appellant.

Arden John Olson, Harrang Long Gary Rudnick PC, Eugene, OR, for Respondent.

Karen Olson Rasmussen, Lisa Gould, Bennett Bigelow & Leedom, Sanford E. Pitler, Seattle, for Amicus Curiae Auburn Regional Medical Center.

SEINFELD, J.

This fee dispute between St. John Medical Center, a medical service provider, and the State Department of Social and Health Services (DSHS) raises a question of contract interpretation. We conclude that the fee-for-service agreement at issue was a unilateral contract and that statutes, rules, and regulations adopted after the parties entered into the agreement but before St. John performed modified the agreement. Consequently, it did not cover the services St. John provided to managed care patients at the request of a managed care organization. Thus, we reverse the trial court's grant of summary judgment to St. John and remand for entry of summary judgment in favor of DSHS.

FACTS

In 1981, St. John and DSHS entered into a "Core Provider Agreement" (CPA) that allowed St. John to provide services to Medicaid patients on a fee-for-service basis and required St. John to bill DSHS

for services rendered to eligible recipients, as identified by a DSHS medical coupon. Reimbursement for covered services will be made according to the Schedule of Maximum Allowances, the drug formulary and other applicable payment levels or schedules. This must be accepted as sole and complete remuneration for services covered under the program. The provider may bill the recipient at the usual and customary charge for deductibles or services not covered by the program.

Clerk's Papers (CP) at 6.

The CPA also discussed the applicability of other laws and regulations to the CPA, as follows:

The Medicaid program is authorized by Social Security Act, Title XIX of Public Law 89-97, 42 CFR Chapter IV, RCW Chapter 74.09, and WAC Chapters 388-80 through 388-95. In case of conflict or inconsistency, the following order of precedence applies.

a) 42 U.S.C., 1302, 1395, et seq.

b) Code of Federal Regulations (CFR)

c) Revised Code of Washington (RCW)

d) Washington Administrative Code (WAC)

e) [DSHS] numbered memoranda

f) Schedule of Maximum Allowances/Fee Schedules

g) Drug Formulary and Therapeutic Index

h) Billing instructions

CP at 6.

Under the fee-for-service Medicaid program, potential providers became participating providers only after DSHS assigned them a provider number and the provider billed DSHS. Participating providers had to agree "to abide by the terms of [the] agreement and by all applicable federal and state statutes, rules, and procedures," CP at 7, and were "held to all the terms of [the CPA] even though a third party may be involved in billing claims to [DSHS]." CP at 6. The CPA allowed either party to terminate the agreement with 30 days' written notice.

In 1993, DSHS began to contract with managed care organizations or providers for managed health care services to Medicaid recipients at a set rate per plan participant. See also former WAC 388-538-070(1) (1997) (allowing DSHS to pay for managed care services using a "capitated system" where DSHS pays the plan a set rate per plan recipient). It called the program Healthy Options.

In 1996, DSHS contracted with Unified Physicians of Washington (UPW) for managed care services for the 1997 calendar year. That contract authorized UPW to enter into written subcontracts with service providers and indicated that UPW had the sole responsibility to pay such subcontractors or other providers for their services.

UPW negotiated with St. John for a subcontract, offering to pay the fee-for-service Medicaid rate. St. John insisted, however, upon the full fee it charged private patients. Consequently, the parties never entered into a written subcontract.

Nonetheless, St. John treated the Healthy Options patients that UPW sent to it. St. John then billed UPW at its full rate. Although UPW paid St. John only the fee-for-service rate, St. John accepted the payments. It then gave notice that it did not consider itself fully paid.

In August 1997, St. John sued UPW for the difference between the fee-for-service rate and its full rate. In September 1997, the Insurance Commissioner declared UPW insolvent and began liquidation proceedings. St. John submitted its claims to the liquidator, asserting, under an implied contract theory, that UPW had an obligation to pay the full rate for all claims. St. John sought payment for outstanding claims and for the difference between its full rate and the fee-for-service rate on all claims that UPW had previously paid. St. John further argued that it could bill the Healthy Options patients for any remaining balances.

In May 1999, the liquidator concluded that the CPA applied to this transaction under an implied contract theory and that the CPA was a valid unilateral contract, entitling St. John to payment at the fee-for-service rate. The liquidator also held that the CPA prohibited St. John from billing the Healthy Options recipients for the remaining balances.¹

Meanwhile, during the insolvency proceedings, St. John sought reimbursement from DSHS at the CPA rate for the remaining balances on its claims against UPW. When DSHS refused to pay, St. John brought this action, asserting that DSHS was independently liable under the CPA. In the alternative, St. John sought a declaratory judgment allowing it to bill the Healthy Options patients for balances due.

The trial court granted St. John's motion for summary judgment as to DSHS's liability and denied DSHS's cross-motion for summary judgment. The court held that the CPA applied to the Healthy Options patients and that UPW had acted as DSHS's agent when it directed Healthy Options patients to St. John and authorized their treatment. The trial court concluded that neither Medicaid regulations nor dealings between the parties modified the CPA or otherwise effected a novation relieving DSHS of liability. The trial court did not address St. John's alternative declaratory judgment request for authority to bill Healthy Options patients.

In its cross-motion for summary judgment, DSHS had argued that St. John (1) had an implied subcontract with UPW, (2) was "subject to all of the rules and obligations related to subcontracting with a managed care plan," and (3) could not obtain reimbursement from DSHS. CP at 337. DSHS also contended that under the CPA, St. John was obligated to comply with DSHS rules, regulations, and program instructions, including the instructions in the "General Information Booklet." DSHS further argued that the federal waivers authorizing the health maintenance programs had modified the CPA, making the health maintenance program responsible for payment. Finally, DSHS asserted that the CPA prohibited St. John from seeking payment from the Healthy Options patients unless the patient signed a written agreement in advance of receipt of noncovered services and the agreement met the requirements of former WAC 388-87-010(9) (1993) (repealed 2000).

At trial on damages, DSHS asserted that St. John's acceptance of UPW's payments and its act of subsequently writing off the debt was an accord and satisfaction, relieving it of any liability. The trial court found that there was no accord and satisfaction. It determined that DSHS was liable for $85,490.53 in damages and interest.

On appeal, DSHS argues that (a) under RCW 48.31.111(2), the trial court lacked jurisdiction over this action because the action related to UPW's insurance insolvency proceedings; and (b) summary judgment in St. John's favor was inappropriate because DSHS was not independently liable to St. John and UPW did not act as its agent. DSHS also argues that the trial court erred in finding that there was no accord and satisfaction.²

DISCUSSION

I. JURISDICTION

DSHS asserts that the liquidation court had exclusive jurisdiction over this action under RCW 48.31.111(2) because the action is "related to" UPW's insurance insolvency proceeding. DSHS also asserts that allowing the trial court to exercise jurisdiction over this action could result in inconsistent results and give St. John an unfair preference over other UPW creditors.

A court may hear and determine a cause or proceeding only if it has jurisdiction over the parties and the subject matter. State v. Werner, 129 Wash.2d 485, 493, 918 P.2d 916 (1996). A court lacking jurisdiction may do nothing more than enter an order of dismissal. Deschenes v. King County, 83 Wash.2d 714, 716, 521 P.2d 1181 (1974). Litigants may not waive subject matter jurisdiction; any party to an appeal may raise the issue of lack of subject matter jurisdiction at any time. RAP 2.5(a)(1); Skagit Motel v. Dep't of Labor & Indus., 107 Wash.2d 856, 858-59, 734 P.2d 478 (1987); In re Matter of Saltis, 94 Wash.2d 889, 893, 621 P.2d 716 (1980).

The Washington State Constitution confers broad original jurisdiction on the superior courts. Const. art. IV, § 6. We narrowly construe exceptions to that jurisdictional grant. Burnside v. Simpson Paper Co., 123 Wash.2d 93, 98-99, 864 P.2d 937 (1994); Orwick v. City of Seattle, 103 Wash.2d 249, 251, 692 P.2d 793 (1984).

Jurisdiction over insurance insolvency and related proceedings is limited by statute, as follows:

No court of this state has jurisdiction to entertain a complaint praying for the dissolution, liquidation, rehabilitation, sequestration, conservation, or receivership of an insurer, or praying for an injunction or restraining order or other relief preliminary to, incidental to, or relating to the proceedings, other than in accordance with this chapter.

RCW 48.31.111(2) (emphasis...