7 Mass. App. Ct. 563 | Mass. App. Ct. | 1979
Affiliated Hospitals Center, Inc. (Affiliated), appeals from a judgment entered in the Superior Court denying further injunctive and declaratory relief pursuant to G. L. c. 231A, § 5. In its complaint, Affiliated asserts that a certain hospital charge control regulation
We summarize the facts necessary to an understanding of the issues, drawing our summary from the undisputed findings of fact made by the judge.
Affiliated is a Massachusetts nonprofit hospital corporation licensed by the Department of Public Health un
Since 1975, among its other responsibilities, the Commission has been required under certain statutory mandates, to review hospital costs, charges, and budgets, and to promulgate regulations necessary to accomplish such
By a complicated system of calculations (discussed in detail later in this opinion) the Commission employed the Medicare allowed costs for FY 1976 as a key statistic along with various projections and indices to arrive at "total patient care costs” for FY 1978. Although Affiliated had not received notification from the Commission at the time of the trial as to the approval or disapproval of its FY 1978 budget, it had completed the forms required by 14 CHSR 11 (using two year old base figures). In addition, Affiliated had also calculated its budget as if the Commission’s prior regulation, 14 CHSR 9 were still in effect (using one year old base figures).
After finding these facts and considering the relevant statutes and regulations, the judge concluded that the regulations contained in 14 CHSR established a prospective rate setting system which did not violate the judgment in Affiliated I; that the provisions of 14 CHSR which govern the definition of “total patient care cost” and the calculation of the FY 1978 cost-to-charge ratio were a reasonable administrative interpretation of the underlying statute; and that 14 CHSR 11 did not violate the statutory directives that put the Commission to rate setting in this area. We agree, and proceed to a detailed analysis of the statute and regulations in the context of the claims raised by the parties.
1. Mootness. The Commission first contends that the case is moot because 14 CHSR 11 (1977) has been superseded for FY 1979 by an entirely different regulation, as required by St. 1976, c. 409, § 5.
2. The statute. Affiliated asserts that the methodology adopted by the Commission to define “total patient care charges” under 14 CHSR 11 impermissibly clashes with the provisions of St. 1976, c. 409, in three respects: (a) the regulation improperly begins its calculation with a two year old base (i.e. 1976) which is not authorized by the statute; (b) the regulation does not include all actual costs incurred by the hospital in its rate setting formula as required by the statutory definition of “total patient care costs;” and (c) as a consequence, the regulation prevents Affiliated from obtaining its statutorily guaranteed cost-to-charge ratio for FY 1978.
However, it is equally apparent that the Commission, in order to establish rates for FY 1978, must start some
One would logically assume then that either the Medicare Act, or the regulations implementing it, contain a crisp definition of total patient care costs, and that the definition falls in line with Affiliated’s assertion that Medicare pays the actual costs found to be reasonable, thereby requiring the Commission to do the same. But the linkage desired by Affiliated is not present for several reasons. The first is that a close reading of both the Medicare Act and the relevant regulations pertaining to it reveals that a definition of "total patient care cost” does not exist anywhere within the whole of the Medicare legislation.
As a result, the Commission cannot allow any request for modification of hospital charges which is not clearly justified by factors of inflation, increased patient volume or costs beyond the control of the hospital. Moreover, even if such factors justify a charge increase, if the applicant hospital’s ratio of cost-to-charges would be lower than ninety-five per cent,
We also think that the conclusion that the Commission does not have to accept actual costs incurred by Affiliated in 1977, but is free acting reasonably to disregard some and accept others, is made apparent by the relationship between costs and charges. Simply stated, the Commission in order to control charges, as the Legislature intended it to do, must have some ability to question the legitimacy of a hospital’s costs.
Finally, a review of the legislative history of c. 409 is also instructive in evaluating the Commission’s contention that it was required to control costs as part of its duty to contain spiraling hospital charges, thereby calling for a treatment of a hospital’s costs different from Medicare treatment of those same costs. We are particularly impressed with the facts of legislative history which indicate that the Commission was the first to propose legislation which would control hospital charges to the Governor, and it was the Commission’s proposal which was submitted almost verbatim to the Legislature and adopted as St. 1975, c. 424.
So both c. 409 considered as a whole and its legislative history point to the conclusion that the Commission need not and should not build into its definition of "total patient care costs” all the actual costs incurred by a hospital in any given fiscal year. Any other conclusion would tend to nullify several provisions of an elaborate statute, which was intended to establish a progressive series of limitations upon hospital charges over a period of time.
C. Cost to charge ratio. Affiliated asserts that the definition and methodology utilized by the Commission to determine "total patient care costs” prevents it from reaching its statutorily guaranteed base period ratio.
3. Does 14 CHSR 11 involve retroactive rate setting? Affiliated asserts that 14 CHSR 11 violates the judgment in Affiliated I which enjoined certain provisions of the prior regulation allowing the Commission to recapture excess revenue from a previous fiscal year through revenue disallowance in the hospital’s current fiscal year. In effect, the application of 14 CHSR 9 enabled the Commission to reopen the previous year’s ratio of costs to charges when actual cost data became available and created a retroactive system of charge review similar to that employed for cost-reimbursements under the Medicare system. The judge in Affiliated I ruled that G. L. c. 6A, §§ 37 and 39, require the Commission to engage in a prospective system of charge review.
We note first that this methodology does not involve itself with an extensive analysis of the hospital’s previous years’ revenues or ratios, factors which were major in
We also find that the present regulation acts prospectively based on the persuasive comments made by the United States Court of Appeals for the First Circuit concerning the Commission’s method for setting Medicaid reimbursement rates. The Medicaid formula employed by the Commission is somewhat simpler than 14 CHSR 11 but is substantially similar in operation. It uses a base year two years prior to the fiscal year being reviewed and an analysis reasonably comparable to the regulation at issue in this case. In Massachusetts Gen. Hosp. v. Weiner, 569 F.2d 1156 (1st Cir. 1978), the formula which established Medicaid rates was said to be prospective in operation. Since the two formulae are essentially the same, we conclude, after a careful comparison of the judgment in Affiliated I and the mechanics of 14 CHSR 11 set forth above, that the Commission’s methodology is prospective in operation despite the use of historical and adjusted data, and that it does not violate the enjoinders set out in Affiliated I.
In summary, the Commission’s methodology for regulating hospital charges contained in 14 CHSR 11 is a "reasonable construction of a regulatory statute adopted by the agency charged with ... [its] enforcement,” School Comm. of Springfield v. Board of Educ., 362 Mass. 417, 441 n.22 (1972), quoting Investment Co. Inst. v. Camp, 401 U.S. 617, 626-627 (1971). Regulations such as 14 CHSR 11 are entitled to great weight "where, as here, (1) the statute itself vests broad powers in the agency to fill in the details of the legislative scheme ...; (2) the agency has participated in the actual drafting of the legislation ...; and (3) the interpretation at issue has been consistently
Judgment affirmed.
The regulation in question is identified by the Commission as 14 CHSR 11 (1977), and is contained in 77 Mass. Reg. 75 et seq. (1977).
Affiliated Hospitals Center, Inc. vs. Weiner, Superior Court, Suffolk County, C.A. No. 19457 (1977). (Affiliated I). The judgment in that action permanently enjoined portions of the Commission’s former regulation, 14 CHSR 9, 31 Mass. Reg. 26 et seq. (1976), which provided for "recapture” of a hospital’s excess revenue from charges provisionally approved by the Commission before the actual cost data were available. The judge in Affiliated I ruled that "[t]he entire structure of c. 409, and of the predecessor statute, c. 424, is that of an unconditionally prospective system of charge modification application and permanent approval... Commission action is limited to approval or disapproval in whole or in part. Absolutely no provision is made for tentative or conditional approval” [of rates].
To the extent that charges for such patients exceed the cost for services as defined by these third parties, the hospital is not reimbursed for services rendered. See generally 42 U.S.C. § 1395 et seq., § 1396 et seq. (1976), and regulations adopted thereunder.
42 U.S.C. §1395 (1976).
42 U.S.C. § 1396 (1976).
Affiliated also includes in this percentage its "bad debts,” those patients who cannot, or do not, pay their bills; however, no figures were introduced as to the number of these patients Affiliated had during the fiscal year in question.
The evidence indicated that Blue Cross allows a bad debt write-off proportional to the percentage of patient services provided to Blue Cross patients, while the other third-party contractors do not permit any write-off or deduction for a hospital’s bad debts.
See St. 1975, c. 424, which established a temporary system for the review of hospital charges by the Commission. It was superseded by St. 1976, c. 409, providing for a permanent system of review.
Affiliated’s FY 1978 runs from October 1, 1977, to September 30, 1978.
Both St. 1975, c. 424, and St. 1976, c. 409, refer to the "base period” as "the twelve month period from April first, nineteen hundred and seventy four, through March thirty-first, nineteen hundred and seventy-five,” which is the "ratio year” for purposes of the regulation, 14 CHSR 11, § 11.17; the hospital’s historic cost-to-charge ratio becomes the "ratio year ratio,” 14 CHSR 11, § 11.21. Affiliated’s three divisions have the following "ratio year ratios”: Peter Bent Brigham — 88.34%; Robert B. Brigham — 90.97%; Boston Hospital for Women — 95%.
Section 5 of c. 409, further orders the Commission to adopt its own definitions of "total patient care costs” and "total patient care charges” not later than October 1,1978, and provides that after this occurs "the provisions of section thirty-seven of chapter six A of the General Laws, inserted by section four of this act, relating to the ratio of total patient care costs to total patient care charges shall become
See generally 20 C.F.R. 405.402, 405.403 (1977).
20 C.F.R. 405.405 (1977).
There was evidence that the Commission instituted a two year old "base year” after the recapture provisions of 14 CHSR 9 were enjoined by the judgment in Affiliated I because the one year old base year relied heavily on projections and estimates in place of actual audited figures. The Commission explained that the use of such projections was adequate if it could reopen the tentative rates after actual data
114.1 Code Mass. Regs. 8.00, 124 Mass. Reg. 102 (1978); 125 Mass. Reg. 141 (1978); 137 Mass. Reg. 40 (1978).
The new regulation adopted by the Commission, 114.1 Code Mass. Regs. 8.00 (note 15, supra) uses part of the challenged 14 CHSR 11 methodology for calculating “budget year reasonable financial requirements” pursuant to the changing statutory mandates required by St. 1976, c. 409, §§ 5-8. We have been informed that a third action is now pending between the parties challenging the provisions of 114.1 Code Mass. Regs. 8.00.
An application for a charge modification must be submitted by a hospital, "at least sixty days prior to the implementation of such modification ... [and] [a]pproval ... shall be deemed granted in the absence of written notification by the commission to the contrary ... within sixty days of such submission.” G. L. c. 6A, § 37. The hospital’s budget must be filed with the Commission "at least sixty days prior to the start of its fiscal year [October 1, 1977]” which "shall approve or disapprove in whole or in part” a budget with a cost-to-charge ratio not lower than ninety-five percent or the historic ratio presumably within the sixty-day period. G. L. c. 6A, § 39.
Since the only years within which the Commission must work are the "base period year” of 1974-1975 and the "applicable fiscal year,” there is nothing which bars using FY 1975 as a base year as well.
This reference expired on October 1,1978, when the Commission established its own definition of total patient care costs, as required by St. 1976, c. 409, § 5.
See generally 42 U.S.C. § 1395 et seq. (1976), 20 CFR 405.401 et seq. (1977).
The judge found as an undisputed fact that the difference between this ratio and 100% "represents a margin of surplus income available for purposes of, inter alia, working capital and capital replacement coverage of bad debt and free care.”
One commentator has explained why this is necessary: "The delivery of hospital care is marked by four characteristics which free it from market control and thus make it impervious to the constraints which normally regulate prices — [fjirst over 91 percent of all hospital bills are paid by so-called third-party payors —; [s]econd, most third-party payors ... compensate hospitals not according to prospectively established charges or fees, but according to a retrospective analysis of the cost of services rendered; [t]hird, the delivery of hospital services is dominated by institutions not motivated by profit considerations. Nonprofit hospitals may adopt and pursue their own institutional goals as long as their operating revenues, plus gifts and endowment income, balance expenses ...; [fjourth, because patients frequently lack the knowledge to determine their actual medical needs, their demand for hospital services is heavily influenced by physicians whose personal interests favor a high level of services. These deviations from the classical economic model go far toward explaining both the rapid growth of and the continued excess supply in the hospital sector ... [while] the high frequency of cost reimbursement permits these administrative luxuries by assuring hospitals a recovery of the expenses incurred to acquire and maintain underutilized facilities.” Note, Hospital Cost Control: Single-Edged Initiatives for a Two-Sided Problem, 15 Harv. J. on Legislation 603, 610-612 (1978). It is the Commission’s contention that unrestricted reimbursement of all actual costs would defeat the clear legislative purpose to control charges for hospital services in light of the unusual economic factors that influence hospital costs and charges.
The Commission asks the hospitals to provide data as to actual and expected patient volume as part of their submissions.
Chapter 424 of St. 1975 was titled "An Act establishing a temporary system for the review of charges for the purchase of hospital care in the Commonwealth;” in § 2, it provided for a review of hospital charge modifications substantially similar to the provisions of G. L. c. 6A, § 37, and required the Commission to "issue regulations setting forth the procedure and substantive standards to be applied in reviewing applications for approval of modifications in charges;” in § 10, it required the Secretary of Human Services to submit "a proposal for a comprehensive system for controlling the costs of purchasing hospital care in the commonwealth” by October 1, 1975; and in §9, it provided for its own expiration date of January 31, 1977.
At trial the chairman testified, "I made a series of recommendations to the Governor early in 1975 with respect to the need for developing a control of hospital charges as a means of controlling the rise of hospital costs that we have been experiencing for the prior years .... I made a series of recommendations to the Governor on how to impact on hospital cost increases____The nature of the recommendations were to develop a regulatory system, a control system, of hospital charges, because since charges at that point had not been regulated, they provided a source of income revenue for the hospitals which the hospitals spent and, therefore, had a direct impact on the increase in hospital costs.”
General Laws c. 6A, § 37, established procedures which were applicable beginning with FY 1977; this section became void after the adoption of regulations required by St. 1976, c. 409, § 5, no later than October 1, 1978. General Laws c. 6A, § 39, required budget review beginning with FY 1978, while G. L. c. 6A, § 40, required the development of a methodology for comparing and grouping hospitals as of FY 1979. From its inception, c. 409 contemplated an evolving system of charge control regulations.
The ratio is obtained by dividing the FY 1978 total patient care costs by total patient care charges.
It is undisputed that if the Commission’s definition of "total patient care costs” is correct, 14 CHSR 11, § 11.123, expressly permits a hospital to maintain its proper ratio of total patient care costs to total patient care charges.
See note 2, supra.
14 CHSR 11, § 11.55, provides for seven categories of cost beyond hospital control which include costs generated by government requirements, costs generated by increase in insurance premiums, costs generated by disaster losses in excess of insurance, and "costs generated by severe financial hardship solely related to the charge review system mandated by Chapter 409 of the Acts of 1976. A severe financial hardship must be such that the financial stability of the hospital is imminently threatened.” 14 CHSR 11, § 11.55(g). We note that Affiliated claimed no cost beyond control under subsection (g).