ATLANTICARE REGIONAL MEDICAL CENTER VS. DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES(DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES), A-0364-15T2

Background

In Dec. 2012 the Division of Medical Assistance and Health Services (Division) notified 25 New Jersey hospitals (the Hospitals) of their 2013 Medicaid inpatient rates; hospitals had regulatory procedures and deadlines to appeal calculation errors or methodology.
Hospitals filed notices of intent and appeals asserting (a) calculation errors dating to 1995–1998 that allegedly compounded into 2013 rates, (b) error in applying a zero inflation (economic) factor for 2013, and (c) that the State charity-care mandate and limited subsidies effected an unconstitutional taking.
The Division rejected challenges based on the 1995–1998 calculation errors as time-barred under N.J.A.C. 10:52-14.17(b) and upheld use of a zero inflation factor based on the FY2013 Appropriations Act and the State Plan amendment process; it also declined to resolve the constitutional takings claims in that administrative forum.
The OAL ALJ upheld the Division on the inflation-factor issue and time-bar ruling, but found the Division’s "merit" standard for triggering a financial review under N.J.A.C. 10:52-14.17(c) vague and recommended remand for an interactive process; the Director adopted most of the ALJ’s findings but declined the remand on the "merit" issue.
The Hospitals appealed; this Court affirms: (1) the 1995–1998 calculation-error claims are barred by the regulation because they were not timely raised in earlier rate appeals; (2) the Division complied with federal notice/State Plan procedures in implementing the zero economic factor; and (3) constitutional takings claims were dismissed without prejudice to litigation in Law Division.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether N.J.A.C. 10:52-14.17(b) barred Hospitals from raising alleged 1995–1998 calculation errors in 2013 rate appeals	Hospitals: prior unresolved challenges preserved the issue for later years; regulation should allow continuing effect claims	Division: regulation requires timely appeal in the initial/relevant year (2009) or issues are forfeited; it only permits later challenges tied to adjustments since the last announced rates	Held: Regulation bars the Hospitals because they did not timely challenge the 2009 rates; even on merits no relief as Division correctly interpreted the economic-factor rule
Whether Division lawfully applied a zero percent economic/inflation factor for 2013 without violating federal Medicaid plan amendment and notice rules	Hospitals: elimination was implemented without meaningful opportunity to comment and without required federal/state procedures	Division: published required notice before effective date, accepted comments, submitted State Plan amendment to CMS after comment period; CMS later approved with effective date Jan. 1, 2013	Held: Division complied with 42 C.F.R. §447.205 and CMS approved the amendment; application of zero factor was lawful
Whether N.J.A.C. 10:52-14.17(c) "merit" standard is unconstitutionally vague or required an interactive process to allow Hospital compliance	Hospitals: standard vague, denied opportunity to engage in interactive process and to obtain Division’s definition of "merit"; denied due process	Division: no vagueness argument raised below; "merit" meaning is sufficiently clear and no remand needed	Held: Director correctly declined remand; Court finds no reversible error in refusing an interactive process here
Whether charity-care statute and inadequate subsidies effect an unconstitutional taking and whether Division had jurisdiction to decide	Hospitals: charity-care mandate plus low reimbursements amount to a taking; Division should address constitutional claims	Division/ALJ: constitutional challenge more appropriately raised against Department/other actors; Division lacks jurisdiction in rate-appeal process; claims can be pursued in Law Division	Held: Constitutional claims dismissed administratively without prejudice; Hospitals may pursue in Law Division

Key Cases Cited

Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1 (standard of review for agency decisions)
In re Proposed Quest Acad. Charter Sch. of Montclair Founders Grp., 216 N.J. 370 (scope of appellate review of agency action)
Utley v. Bd. of Review, 194 N.J. 534 (deference to agency interpretation of its regulations)
N.J. Healthcare Coal. v. N.J. Dept. of Banking & Ins., 440 N.J. Super. 129 (agency knowledge and rule interpretation deference)
In re Zurbrugg Mem'l Hosp.'s 1995 Medicaid Rates, 349 N.J. Super. 27 (process/remand for interactive clarification of "merit" standard referenced by ALJ)
Estate of F.K. v. Div. of Med. Assistance & Health Servs., 374 N.J. Super. 126 (Medicaid is state-administered subject to federal rules)
Mistrick v. Div. of Med. Assistance & Health Servs., 154 N.J. 158 (state participation in Medicaid requires compliance with federal Medicaid law)
In re Freshwater Wetlands Gen. Permit No. 16, 379 N.J. Super. 331 (agency interpretation of rules entitled to deference)
Mazza v. Bd. of Trs., 143 N.J. 22 (standard for appellate review of agency factfinding)