OUR LADY OF LOURDES HOSPITAL â€" BURLINGTON VS. DIVISION  OF MEDICAL ASSISTANCE AND HEALTH SERVICES(DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES)
A-2919-15T2
N.J. Super. Ct. App. Div.Oct 25, 2017Background
- Our Lady of Lourdes Hospital (formerly Zurbrugg) challenged the Division of Medical Assistance and Health Services’ calculation of its 1995 Medicaid inpatient reimbursement rates, focusing on the regulation at N.J.A.C. 10:52-5.17(a) (the “economic factor”).
- The regulation ties an "economic factor" (to account for inflation) to "the factor recognized under the TEFRA target limitations." TEFRA (federal law) provided multiple possible measures (e.g., market basket percentage increase or an "applicable percentage increase").
- The Hospital argued the economic factor must mean TEFRA's "market basket percentage increase" as it existed when the rule was adopted in 1993, and that TEFRA bonus (incentive) payments should be included.
- The Division interpreted the rule to mean the TEFRA "applicable percentage increase" (i.e., the TEFRA target limits in effect in the rate year) and that the rule incorporates later TEFRA amendments as applicable; it excluded TEFRA bonus payments from the economic factor.
- Administrative proceedings (OAL) and judicial review ensued; the ALJ and the Division Director granted summary decision for the Division, concluding (1) the Division’s interpretation was consistent with the regulation and its regulatory history, (2) later TEFRA amendments could apply prospectively to rate-setting, (3) TEFRA incentive payments were not incorporated, and (4) no APA rulemaking or additional discovery was required. The Appellate Division affirmed.
Issues
| Issue | Hospital's Argument | Division's Argument | Held |
|---|---|---|---|
| Meaning of "economic factor" in N.J.A.C. 10:52-5.17(a) | "Economic factor" = TEFRA "market basket percentage increase" (measure of price changes). | "Economic factor" = TEFRA "applicable percentage increase" (TEFRA target limitation in effect for the rate year). | Affirmed Division: regulation language and rule history support "applicable percentage increase." |
| Incorporation of future TEFRA amendments | Rule must incorporate TEFRA as it existed in 1993; later amendments cannot change the regulation. | Rule references TEFRA limits prospectively; the Division may apply the TEFRA limits in force when rates are set. | Affirmed Division: phrase is forward-looking; later TEFRA changes may govern rate-years without retroactive rulemaking. |
| Inclusion of TEFRA incentive/bonus payments in the economic factor | TEFRA bonus payments are part of TEFRA and should be included (otherwise efficient hospitals are penalized). | Regulation and record do not show intent to incorporate TEFRA’s full bonus scheme; economic factor was an inflation adjustment only. | Affirmed Division: incentive payments are not included by the regulation. |
| Whether APA rulemaking or retroactive rulemaking was required | Applying post-1993 TEFRA changes to the regulation without notice/comment required formal rulemaking under the APA. | The Division’s interpretation is an application/interpretation of an existing rule, not new rulemaking; APA procedures not required. | Affirmed Division: interpretation is not rulemaking under Metromedia factors; no APA violation. |
| Adequacy of discovery / summary decision | Division’s summary decision was premature; Hospital needed discovery (e.g., witness R.S., in-camera documents) to prove agency intent and calculations. | The issue was legal (interpretation of the rule); further discovery would not change the legal outcome; in-camera review and withheld-doc rulings did not prevent summary disposition. | Affirmed Division: summary decision appropriate; Hospital failed to show discovery would likely change outcome. |
Key Cases Cited
- Estate of F.K. v. Div. of Med. Assistance & Health Servs., 374 N.J. Super. 126 (App. Div. 2005) (background on Medicaid framework)
- Mistrick v. Div. of Med. Assistance & Health Servs., 154 N.J. 158 (1998) (state must follow federal Medicaid law)
- Wilder v. Va. Hosp. Ass'n, 496 U.S. 498 (1990) (state plan must set reimbursement scheme)
- In re Hosps.' Petitions for Adjustment of Rates for Reimbursement of Inpatient Servs. to Medicaid Beneficiaries, 383 N.J. Super. 219 (App. Div. 2006) (rate-setting context)
- Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1 (2009) (scope of review of agency action)
- Utley v. Bd. of Review, 194 N.J. 534 (2008) (deference to agency interpretations of own regulations)
- N.J. Healthcare Coal. v. N.J. Dep't of Banking & Ins., 440 N.J. Super. 129 (App. Div. 2015) (agency knows its rules' meaning)
- DiProspero v. Penn, 183 N.J. 477 (2005) (statutory interpretation principles)
- In re Commitment of Edward S., 118 N.J. 118 (1990) (incorporation-by-reference rules)
- Hassett v. Welch, 303 U.S. 303 (1938) (adoption of statute incorporates text as of adoption absent contrary intent)
- Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313 (1984) (factors for when agency action constitutes rulemaking)
- Wilson v. Amerada Hess Corp., 168 N.J. 236 (2001) (discovery needed to defeat summary judgment)
- Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344 (2011) (review of discovery rulings for abuse of discretion)